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

[dc_h]

How would that work? Even if q2 was profitable q1 wasn't and they have to have 4 consecutive quarters of profit don't they?

Not consecutive, just 4 quarters that add up to a profit in total. 252 million profit would put Tesla in the green for the prior 4 quarters.

 

[FrankSG]

That is not how it works. I suggest you read the posts about margin, COGS, ASP etc in the finance thread.

COGS is the cost determined (one of the ways, anyway) at the time of manufacture. They take the cost (avg, FIFO etc) of all the parts that went into that car, labor allocated to that car, depreciation allocated to that car etc. Usually this is done by model, trim, options, rather than individual car in practice.

But margin is determined at the time of sale. Margin = (Sale price - COGS)/Sale Price. This is also usually determined by model+trim, but reported only at Tesla level.

So, a particular car comes with a particular COGS, attached to it in the quarter it was manufactured. But the price and the margin is determined only after the actual sale takes place.

Given a particular COGS, you get lower margin if the price (or ASP) is lower. The kind of ASP you are estimating (which I hope is too low) would give very low margin. I didn't look into why you think ASP would be that low, though.

COGS = 80K

ASP1 = 100k , Margin = 20%
ASP2 = 90k, Margin = 11%
ASP3 = 80k, Margin = 0%

I think I understood correctly then, just like the post above you describes it is how I understood how inventory works.

Now that I think about how inventory affects S+X ASPs and Margin (I didn't think about this before I wrote the blog post), that just makes it even harder to predict them for this past quarter. I'm assuming then that Tesla tried to sell most of its pre-Raven inventory and replaced that inventory with a lot of the early Raven production. This would mean that the margins of S+X in Q2 come from multiple different sources:

• Some early Raven production. Hard to predict margins on these.
• Some inventory from cars that didn't reach consumers in Q1. These have much higher COGS due to low Q1 production number, and some fixed costs spread over a smaller # of cars.
• Some inventory from cars that have been in inventory since 2018 as showroom models, test drive cars, etc. These should have much lower COGS due to higher production numbers last year and fixed costs being spread out over a larger # of cars. However, they may have been discounted?

Model S+X COGS of 80k seems impossible though. Take Q1'17 Automotive revenue (excluding leasing) for example. They sold 25,051 Model S+X @ ASP of $81,237, and had a margin of 26.5%. Seems likely that a large number of these were inventory cars / used cars (how else 81k ASP), but still. Q2'17 was 22,026 cars at ASP of $91,431 with 26.9% gross margin.

 

[StealthP3D]

I do agree this will be substantial and surprise many people. I think FCF will be higher than Q3'18 and Q4'18, and Tesla could end up with a cash position of 6B-7B at the end of the quarter (including capital raise).

Imagine what the share price will do if that scenario pans out and people realize Tesla is NOT burning through cash!

 

[FrankSG]

Imagine what the share price will do if that scenario pans out and people realize Tesla is NOT burning through cash!

Do you remember this thread by jesselivenomore? His theory is that a bunch of people only short Tesla to bankrupt it, so they would likely close their short positions overnight.

 

[Mars ☰mperor]

Do you remember this thread by jesselivenomore? His theory is that a bunch of people only short Tesla to bankrupt it, so they would likely close their short positions overnight.

Come on, that thread is the Bible of any real Tesla investor.

 

[EVNow]

Model S+X COGS of 80k seems impossible though. They sold 25,051 Model S+X @ ASP of $81,237, and had a margin of 26.5%. Seems likely that a large number of these were inventory cars / used cars (how else 81k ASP), but still. Q2'17 was 22,026 cars at ASP of $91,431 with 26.9% gross margin.

$80k is just an example, using simple round numbers.

Used cars are not included in auto sales/cogs. Otherwise the numbers will be low because of prius and other low cost cars traded in.

I've not looked at '17 - so can't really say much. Past 5 quarters S&X ASP has been > 100k with about 20% margin. That is why I used 80k as a good example of COGS.

 

[StealthP3D]

Do you remember this thread by jesselivenomore? His theory is that a bunch of people only short Tesla to bankrupt it, so they would likely close their short positions overnight.

Yes, that post is a real keeper and is pretty much right on. It looks like Musk is finally getting the upper hand but the remaining challenges are still significant. We will know how effectively he was at reigning in costs when Q2 numbers are released. I'm betting it's much better than expected.

Musk shows all the signs of becoming a modern-day legend (and I don't say that lightly). People who don't appreciate the magnitude of his accomplishments can't understand them. That said, he hasn't done this by himself, there are many super-talented and dedicated people working behind the scenes to bring their products to market. These people have the satisfaction of knowing they are working on something that is important for their children and grandchildren, actually, all of mankind. And I think that is the one tailwind Musk has capitalized on. The rest is just an uphill battle.

 

[KSilver2000]

I hope you'll get a chance to edit this otherwise informative post and remove the last line. The mods are trying to improve the SNR and they don't need cheap shots. Thanks for your attention.

Edited.

Thanks.

 

[Off Shore]

Edited.

Thanks.

Deleted.
Thanks.

 

[StealthP3D]

P.S. I bet this post gets moved too since, for some people, it’s just not right to be critical of anything Tesla.

I don't think there's anything wrong with being critical of Tesla but I do wonder why the vast majority of your posts seem negative and critical when we are discussing the company that is making bleeding edge cars. They are probably America's most innovative manufacturing company of the modern era and yet the vast majority of your posts focus on negative things that seem blown out of proportion relative to the amazing things the company has achieved in such a short period of time. Hundreds of negative posts out of only 500-some posts in total. There is an obvious imbalance there.

I think there might be a reason for that but I'm not holding my breath waiting for you to come clean.

 

[FrankSG]

Used cars are not included in auto sales/cogs. Otherwise the numbers will be low because of prius and other low cost cars traded in.

Do you know how they count this revenue then? Is it part of Service & Other? It's definitely not part of leasing, nor energy.

I've not looked at '17 - so can't really say much. Past 5 quarters S&X ASP has been > 100k with about 20% margin. That is why I used 80k as a good example of COGS.

What makes you think so? It'd give the following numbers for Model 3:

Considering the cheapest variant was ~50k throughout Q3'18, and in Q1'19 earnings call they said US M3 ASPs were very close to 50k (and non-US obviously higher), this seems very incorrect. Also 29.5% and 26% M3 gross margins in Q3'18 and Q4'18 respectively also doesn't seem right.

 

[EVNow]

My Tesla Q2'19 Earnings Forecast

Summary:

• Automotive Revenue = 5.45B ~ 5.7B
• Automotive Gross Margin = 22% ~ 24%
• Total Revenue = 6.5B ~ 6.85B
• Gross Profit = 1.05B ~ 1.4B
• Income From Ops = -50M ~ +300M
• GAAP EPS = -$1.50 ~ $1.00
• Free Cash Flow = 400M ~ 1.5B
• Cash EoQ = 5.1B ~ 6.7B

What do you mean by this ?

... no matter what ASPs you fill in in Q1'19, something is definitely not right in that quarter.

Did you take into account the big write downs for purchase price warranty ? That removed $500M from revenue and some $410M from COGS.

 

[EVNow]

What makes you think so? It'd give the following numbers for Model 3:

The gross for all models is about 20% (18.8% to 25.5%). Check the Finance Projection thread for actual estimates.

 

[FrankSG]

What do you mean by this ?


Did you take into account the big write downs for purchase price warranty ? That removed $500M from revenue and some $410M from COGS.

Hmm, rereading their Q1 earnings letter:

In Q1, we experienced non-recurring items that negatively impacted our net loss by $188 million. As a result of Q1 pricing actions taken on Model S and Model X, we incurred net $121 million loss for increases in the assumed forecasted return rates for cars sold under our Residual Value Guarantee and Buy Back Guarantee programs, as well as inventory write downs for used and service loaner inventory. We also incurred $67 million due to a combination of restructuring and other non-recurring charges.

Sounds like you're right, and this affected Q1 automotive revenue? I thought this just ended up in "changes in operating assets and liabilities" under cash flows, and mostly went to inventory write downs. I did not account for this.

 

[KSilver2000]

I don't think there's anything wrong with being critical of Tesla but I do wonder why the vast majority of your posts seem negative and critical when we are discussing the company that is making bleeding edge cars. They are probably America's most innovative manufacturing company of the modern era and yet the vast majority of your posts focus on negative things that seem blown out of proportion relative to the amazing things the company has achieved in such a short period of time. Hundreds of negative posts out of only 500-some posts in total. There is an obvious imbalance there.

I think there might be a reason for that but I'm not holding my breath waiting for you to come clean.

First. “Hundreds” is a gross overstatement. Did you even bother to tally every single one of my posts to conclude that? Likewise, I feel you tend to over exaggerate sometimes.

I own couple Tesla’s, and neither being their cheap 3’s.
I own over 1k shares.
I believe I have enough skin in this game to see this company succeed.

I love my Tesla cars. Just don’t share the same level of love for some other aspects of the company, management, business decisions. I’m not the expert working within the Tesla walls, but if I feel something could be done differently for the better, I’ll say it. Everyone has their own views, right.
Is that wrong?

I tend to run in the middle. Not the most liked position, here, in politics, or many places for that matter in life. I’m not saying I’m always right, but I like to tell it the way it is, no lipstick. I just try to stay objective. I don’t drink the koolaid nor share the same mindset of Fudsters. Postings out of left or right field tend to have unsupported statements, which I’ll call out.

This is an investment after all. This needs to make me money in both short and long term. Whether it takes a record quarter or a 420 tweet, great. I’ll take it either way.

 

[StealthP3D]

This is an investment after all. This needs to make me money in both short and long term.

Not even an index fund can promise you that so if you "need" to make money in both the short term and the long-term I would suggest you are in the wrong investment vehicle. Try some AAA bonds and/or CD's.

So, a disgruntled shareholder? That could explain it. But it makes me wonder why you are invested in a company you find so terrible.

 

[KSilver2000]

Not even an index fund can promise you that so if you "need" to make money in both the short term and the long-term I would suggest you are in the wrong investment vehicle. Try some AAA bonds and/or CD's.

So, a disgruntled shareholder? That could explain it. But it makes me wonder why you are invested in a company you find so terrible.

Did I say the company is terrible? I said there are aspects that I think could be done differently in my opinion.

Did I use the word “promise”? Need != Promise required.

From previous posts, it seems like you have a disagreement with me and tend to twist what I say.

I stick around because I like the product and want to see Tesla get better. For the company and the environment. Isn’t the latter Tesla’s mission? If more EVs are made, even if by current ICE brands and even if they don’t match Tesla pound for pound, all the better. Doesn’t matter if they are 200hp and 200tq short, or 20% less efficient, or cost 10% more/less, or will produce 200,000 less annually, One more EV means one less ICE on the road. Plain and simple. Some people here seem to forget that and dismiss any other EV that doesn’t come close to being equal to a Tesla as a complete failure. SMH.

You’re right, my long term TSLA positions (accumulating since 2015) have been my worst investments. And that’s a source of my frustration at trying to right some of their deficiencies. Practically no long term gain. You’re right again. Bonds and/or CD’s may have done better for me than holding long term positions over the last 4-5 years. If that doesn’t frustrate an investor, maybe they’re not a true investor but more a loyal Tesla follower. That’s not particularly a bad thing, though. Just not my way of investing.

But, my short term Tesla investment trades have been all $$money. Probably the best of my companies invested in. (BTW, AAPL is another good one for short term investing. For me at least.) It’s been paying for my monthly Tesla loan payments. (I don’t know you, but thanks to everyone out there I’m trading with). I probably wouldn’t have much to say if I only held short term since these trades often don’t have much to do with the long term business of Tesla.

One thing I’ve learned over time and with experience...don’t fall in love with you’re investments. Gotta be objective. Either objectively invest in something you find interesting, or donate for the bigger picture you care for.

 

[Buckminster]

View attachment 432153

82% dual motor!! Providing an upgrade path towards the P3 by lowering prices has worked brilliantly. Most people end up buying $5k of frivolous options once they make the big decision - Elon pushes them up a whole "engine size". Gross Margin could rocket well above 20% in Q3 but still affected by loss of revenue / profit from the SR S/X.

 

[schonelucht]

Do you know how they count this revenue then? Is it part of Service & Other? It's definitely not part of leasing, nor energy.

Correct. Tesla mentioned this a few time when discussing the increasing losses in service& others. Apparently used car sales runs about break even. But that info is from a few quarters ago. I’d need to look it up to be sure. I would certainly welcome a break down of service revenue into service & other versus used car sales.

 

[CorneliusXX]

Do you remember this thread by jesselivenomore? His theory is that a bunch of people only short Tesla to bankrupt it, so they would likely close their short positions overnight.

Jesse seems like a really interesting guy. Here is a podcast he did a few weeks ago which goes way out into the weeds on accounting practices and growth measurement. It was more interesting than one might expect.

Jesse Livermore – The Search for the Truth with the Anonymous Master – [Invest Like the Best, EP.136]

Apparently he works for O'Shaughnessy Asset Management and uses the same pseudonym everywhere.