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

[ReflexFunds]

How do you feel about EBITDA as a metric for TSLA?

I always prefer EBITDA to operating income or net income. Ideally companies would provide EBITDA less maintenance capex which I think is the best measure to value a company's current business cash flows (still not a relevant metric to value Tesla as all its value is in future cash flows from a much larger business). Unfortunately maintenance capex is nearly always a guess.

In Tesla's shareholders letters I think the best metric to look at is operating cash flow less changes in operating assets and liabilities, less convertible bond related items.

In 2Q19 this was $864m - $287m = $577m.
This compared to $225 in 1Q19, $1,036m in 4Q18 and $37m in 2Q18.

This takes away short term fluctuations in working capital such as inventory/payables timing (In Q2 Tesla benefitted from inventory reduction but was impacted by payables days reduction, presumably because they stretched supplier payments in Q1 with the weaker results).

From this it is clear Tesla's underlying cash flows are very strong and have made huge progress year on year. This was despite negative impact from $137m reduction in customer deposits in Q2 QoQ (presumably one time effect as Tesla cleared out the Model 3 reservation book).

 

[Nocturnal]

For me, I’m calculating not until China GF3 is at/near full capacity utilization, which i don’t think will happen until end of 2020 realistically at best.

I figure that once GF3 is up and pumping out cars then the negative story will finally die then.

 

[capster]

I don't know if anybody commented on it yet, but the planned TWH level of battery production mentioned yesterday is not unrealistic. But it's a very long term goal, likely ten years out to get to the full TWH level, with an initial hundreds of GHW in five years or so.

One TWH is 1000 GWH. Current capacity is about 28 GHW. So about 35x as noted by Electrek.

Now, Tesla is producing about 400k vehicle run rate off the current 28 GWH capacity, plus some relatively small energy storage capacity. Ignoring the energy storage, 10x (or 280 GWH) would give about 4M vehicle run rate. Elon estimates Model 3 and Y to be about 1.5 - 2M. Add in pickup, S, X, roadster, and semi, that gets you to almost 4M, not counting further future growth or additional vehicles.

Tesla has stated several times that energy storage business would eventually be as big as vehicles. So another 280 GWH energy storage. That's almost 600 GWH combined in the future. So 1000 GWH (or 1 TWH) is not unrealistic, especially considering further growth in autos (beyond 4M vehicles) and energy into the next decade and beyond.

Yup, and don’t forget leaf blowers. Oh, and the boring machines, the earth/mars/asteroid mining machines, etc.

 

[StealthP3D]

Yup, and don’t forget leaf blowers. Oh, and the boring machines, the earth/mars/asteroid mining machines, etc.

Vibrators use a lot of batteries too!

 

[anthonyj]

Kevin O’Leary bought Tesla today LOL

 

[Singuy]

So about this FSD revenue not being realized until the features are in, where on the balance sheet would this sum of money be? So does it not require to be on the balance sheet and it's just stored away in a bank?

How much revenue that's not realized from FSD currently?

 

[ReflexFunds]

So about this FSD revenue not being realized until the features are in, where on the balance sheet would this sum of money be? So does it not require to be on the balance sheet and it's just stored away in a bank?

How much revenue that's not realized from FSD currently?

They have $2,065m of deferred revenue as a liability on balance sheet currently (important to note this is nearly all a non-cash liability). But they do not break this down fully into FSD/ FCA credits/ supercharging & connectivity commitments/solar/leasing deferred revenue etc.

Auto related deferred revenue (ex credits and ex leasing) was $1.04bn at Q1. This may be closer to $1.2bn now. I expect a majority of this is FSD.

 

[UncaNed]

I should have known better. However I'm literally stupid. Losing 12% overnight sure is fun. I'm getting used to getting f***ed by TSLA though.

TSLA didn't do anything to you. Perhaps an army of short sellers, our corrupt SEC, and Bernie Madoff did.

Personally, I think TSLA will do just fine, and I appreciate this unexpected buying opportunity.

 

[M3Rider]

When thinking about lower margins, it's important to remember what Tesla had to do to get here.

I paid $59k for my TM3 including EAP or, otherwise, $54k without EAP.
Today it's $49k including $2k AP, or $47k minus AP.
This is a difference of 54-47=$7k that Tesla was able to shave off during the last 10 months.
Or $5k prior to the latest price drop.

I think it's a remarkable achievement and for this config, they are knocking prices down faster than FTC tapers off.

Currently, adjusted for FTC, consumers are getting a $1k better deal than what I paid.
But for Tesla it was not a $1k price drop, but $7k. We should remember that when we ask where are the profits.

I think this is not a bad result if Tesla continues to grow after overcoming this challenge.

If the battery investor day really means what we think it is, then the prices drop again and the "competition" will start having a really hard time. Coming next year near you.

Btw, anybody noticed that Y prices on the tesla.com did not change? The white color is still $2k and there were no price adjustments similar to the latest round on the 3...It's like they don't really care that people won't order because of this. Maybe they don't want people to order, so they don't need to cancel and re-order after Tesla adjusts pricing following the battery day.

Edit: adjusted $1k for color that I forgot to include into spec.

 

[KSilver2000]

Anyone have an idea what’s going behind the scenes with their PV retrofit business?

I know they had serious issues during transition of taking over SC. (The group I work with for solar PV installs is mostly ex-SC/Tesla installers).

But, now, with even undercutting the bigger names, why is deployment almost half of the previous record low? They’re down to about 10% of what they did just 3 years ago.

Edit: are they de-prioritizing PV and putting all resources into PW?

 

[kengchang]

Anyone have an idea what’s going behind the scenes with their PV retrofit business?

I know they had serious issues during transition of taking over SC. (The group I work with for solar PV installs is mostly ex-SC/Tesla installers).

But, now, with even undercutting the bigger names, why is deployment almost half of the previous record low? They’re down to about 10% of what they did just 3 years ago.

Edit: are they de-prioritizing PV and putting all resources into PW?

Solar install should go up Q3 with the price drop in Q2

 

[elasalle]

Solar install should go up Q3 with the price drop in Q2

I did my part, waiting for county to switch the meters ....

 

[elasalle]

ARK Invest on Twitter

ICYMI: Analyst
@TashaARK
joined
@YahooFinance
earlier today to talk about $TSLA

 

[SOULPEDL]

When thinking about lower margins, it's important to remember what Tesla had to do to get here.

I paid $59k for my TM3 including EAP or, otherwise, $54k without EAP.
Today it's $48k including $2k AP, or $46k minus AP.
This is a difference of 54-46=$8k that Tesla was able to shave off during the last 10 months.
Or $6k prior to the latest price drop.

I think it's a remarkable achievement and for this config, they are knocking prices down faster than FTC tapers off.

Exact same as we paid, $59K. So at first I felt like I just lost $8K reading your post... until I remembered my $7,500 Tax Credit. (Plus I got the ultimate service and a year before anyone else, with the exact same functionality as a new one today). I agree, that was an amazing feat. Nicely throttling demand, and cutting costs all the way.

We now settle in on the $35K basic Model 3, and he's still maintaining 19% (I believe he said?) with the mix even while the ratio of 3:S/X continues to rise. I've mentioned this before, these are very high margins in the Auto Industry. Here are some examples:

"Ford's gross margin on automotive in 2017 was roughly 10%, and their profit margin (before taxes) was roughly 5%." Putting this in perspective: "For an average priced$22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is$1,100. On average Ford makes $1,100 per vehicle."Feb 17, 2018​

Check this story out, even a bit conservative on Tesla ASP I think:
TESLA MODEL 3 PROFIT TARGET IS 5X HIGHER THAN THE AVERAGE VEHICLE FROM FORD
Love the last para:

"Let that sink in," Lee concludes. "If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford. And Tesla would just be getting started."​

 

[Motor Mouth]

I always prefer EBITDA to operating income or net income. Ideally companies would provide EBITDA less maintenance capex which I think is the best measure to value a company's current business cash flows (still not a relevant metric to value Tesla as all its value is in future cash flows from a much larger business). Unfortunately maintenance capex is nearly always a guess.

In Tesla's shareholders letters I think the best metric to look at is operating cash flow less changes in operating assets and liabilities, less convertible bond related items.

In 2Q19 this was $864m - $287m = $577m.
This compared to $225 in 1Q19, $1,036m in 4Q18 and $37m in 2Q18.

This takes away short term fluctuations in working capital such as inventory/payables timing (In Q2 Tesla benefitted from inventory reduction but was impacted by payables days reduction, presumably because they stretched supplier payments in Q1 with the weaker results).

From this it is clear Tesla's underlying cash flows are very strong and have made huge progress year on year. This was despite negative impact from $137m reduction in customer deposits in Q2 QoQ (presumably one time effect as Tesla cleared out the Model 3 reservation book).

One could do much worse than simply copying ARK. They seem to have a balanced and relatively patient buy strategy. Or I suppose you could always just buy ARK funds.

 

[KSilver2000]

Here are some examples:

"Ford's gross margin on automotive in 2017 was roughly 10%, and their profit margin (before taxes) was roughly 5%." Putting this in perspective: "For an average priced$22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is$1,100. On average Ford makes $1,100 per vehicle."Feb 17, 2018​

Check this story out, even a bit conservative on Tesla ASP I think:
TESLA MODEL 3 PROFIT TARGET IS 5X HIGHER THAN THE AVERAGE VEHICLE FROM FORD
Love the last para:

"Let that sink in," Lee concludes. "If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford. And Tesla would just be getting started."​

That would be the likely conclusion because Tesla’s focus is the 3 and Ford’s focus is the trucks. Margins on the trucks are estimated between $10-$17K/truck. Overall margins even with their lagging sedans are about the same as Tesla’s overall margins.

 

[Silent Ludicrosy]

10 minutes to SpaceX launch

 

[SOULPEDL]

That would be the likely conclusion because Tesla’s focus is the 3 and Ford’s focus is the trucks. Margins on the trucks are estimated between $10-$17K/truck. Overall margins even with their lagging sedans are about the same as Tesla’s overall margins.

Citation?
I quoted from a Google search on "average profit margin for auto manufacturers".
$10K-17K per truck seems high.

 

[SOULPEDL]

10 minutes to SpaceX launch

Nice and sunny, worth the wait

 

[Doggydogworld]

I agree that future Opex is core to medium/long term profitability forecasts and nonsense opex arguments have always been core to TSLAQ's narrative. But I don't think that unit opex is a relevant measure - opex is almost all fixed cost and has no significant connection to how many cars are sold. Unit opex is just a measure of current car volume and not structural profitability.

Tesla certainly promotes this narrative, but I'm extremely skeptical.

R&D at carmakers both large and small tends to run about 5-6% of revenues. Tesla was 5.1% in Q2. R&D is the #1 example of "opex that's actually an investment", but you need some level of "maintenance R&D" just to stay competitive. Tesla is still spending on "growth R&D", mostly Model Y, but they've underspent on S&X maintenance R&D. And it's coming back to bite them in the form of lower S/X sales and margins. I don't expect R&D to drop below 5% and I'd consider it a bad sign if it does.

Carmaker SG&A also tends to run in the mid single digits. At 10% it seems Tesla has lots of headroom. But other carmakers don't maintain their own sales and support infrastructure. That runs 4-5% of gross revenue at large premium car dealers. So Tesla is already at parity, more or less.

Tesla is experimenting with ways to lower sales and support costs. So far the results have been mixed (just ask @neroden, ha). And Musk's thoughts on ways to grow sales yesterday were mostly about...…. adding infrastructure.

Tesla added a huge chunk of opex (especially SG&A) in 2016 when they bailed out SCTY. They've gradually eliminated most of that SG&A over the past 18 months. This gives the illusion of "fixed opex". But growth in Auto-related opex has been masked by the SCTY wind down.

I expect opex to grow more or less in line with sales from here on out. If Musk is right about 3/Y doing 2 million units/year then I'll be wrong about this. We'll see.