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Depreciation and Amortization is part of Fixed Costs and works exactly as the examples above. Charged to COGS as each vehicle is sold otherwise held in inventory with each car not yet sold.

So the Fremont Model 3 situation of highly negative gross margins per car cannot really happen at GF3, because GF3 is ramping up so quickly?

That's really good news and would mean Tesla could deliver just 15 MIC cars in Q4, without any meaningful negative impact on Q4?

Thanks for the explanation!
 
Not to make a nice weekend less nice, but is appears FERC (the Fossil Energy Reinforcement Commission Federal Energy Regulatory Commission) has given America a lump of coal for Christmas. :(

FERC "announced a directive just a few days before Christmas which will require PJM Interconnection to raise prices of wind and solar power to be in line with the cost of fossil fuels — a move slammed by the Union of Concerned Scientists which believes it will increase the cost of electricity to consumers between $2 billion and $8 billion per year." From: FERC Sides With Fossil Fuels In Forcing Renewables To Match Prices | CleanTechnica

The rationale evidently is that some States subsidize clean energy and that makes things tougher for the fossil fuel industry, the most heavily subsidized industry on earth.

FERC site: FERC Directs PJM to Expand Minimum Offer Price Rule

Not sure what the impact will be on the energy side of Tesla's business, but probably not helpful.
 
So the Fremont Model 3 situation of highly negative gross margins per car cannot really happen at GF3, because GF3 is ramping up so quickly?

That's really good news and would mean Tesla could deliver just 15 MIC cars in Q4, without any meaningful negative impact on Q4?

Thanks for the explanation!

In my opinion that's correct. The MiC gross margins will not have the Fremont Model 3 ramp up margin problems; however, they won't be optimized until GF3 gets to full capacity. So although the MiC gross margins won't be bad, they will get even better once they are producing 3k per week vs the 1k we see now.
 
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Whatever happens in Q1 2020 doesn't really matter because by the time we get to Q4 2020, TSLA will reach ATHs as the investment community fully appreciates what has happened and what's to come. If Q1 2020 deliveries exceeds Q4 2019, then the stock push up begins in April...if Q1 2020 is a "head fake" with lower deliveries with FUD being spewed by the regular suspects, then the stock push up does not arrive until June/July.

Help me see a path to Q1 2020 deliveries exceeding Q4 2019.
All back of an envelope:
I expect decreased shipments in Q1 from the Netherlands and US (the US due to seasonality and loss of tax credits).
I expect the MiC sales and the sales to starved European countries to offset the lost Netherlands sales.
So outside the US, I can see sales in Q1 2020 being equal to Q4 2019.
What would offset the sales drop in the US?
Those are all qualitative statements. Quantitatively, the results can be very different. What if Mic sales are 3K/week? That drowns all other changes.
 
Surprise Y, surprise 100kwh model 3, hopefully more useful FSD features like autopark. Any mention of the first two things now would Osborn selling every car they have in Q4.

What about solar roof? Nobody seems to be even listing this as a real thing. Tesla is hiring installers for this now.

Announcing the 100kwh battery would have a very small affect so long as the price is announced and it is high enough. If it was $10k more and part of a ludicrous upgrade it would make huge money and not slow sales much right now v
 
Whatever happens in Q1 2020 doesn't really matter because by the time we get to Q4 2020, TSLA will reach ATHs as the investment community fully appreciates what has happened and what's to come. If Q1 2020 deliveries exceeds Q4 2019, then the stock push up begins in April...if Q1 2020 is a "head fake" with lower deliveries with FUD being spewed by the regular suspects, then the stock push up does not arrive until June/July.

Help me see a path to Q1 2020 deliveries exceeding Q4 2019.
All back of an envelope:
I expect decreased shipments in Q1 from the Netherlands and US (the US due to seasonality and loss of tax credits).
I expect the MiC sales and the sales to starved European countries to offset the lost Netherlands sales.
So outside the US, I can see sales in Q1 2020 being equal to Q4 2019.
What would offset the sales drop in the US?

I posted this before, but it got moved to another thread due to an OT reference, so here's an updated list of potential Q1 headwinds/tailwinds I see:
  • Q1 auto sales are seasonally weaker in the northern hemisphere.
  • Netherlands pulled a lot of Q1 demand to Q4 - possibly several months worth of.
  • German EV sales are still depressed due to VW and German government shenanigans, and it's unclear exactly when they'd announce the new incentives.
  • China Model 3 sales will be GF3 heavy, which might depress demand for Fremont made units.
  • UK's corporate car incentives will likely generate a spike in demand in March, but the magnitude is probably hard to judge, resulting either in missed sales, or extra UK inventory at the end of Q1. Fremont is too far away to ramp RHD cars dynamically based on March demand.
  • California state incentives were cut in December.
  • End of U.S. tax credit of $1,875 probably pulled 4-5 weeks of Q1 U.S. demand for SR+ to Q4. Effect on AWD/P should be 3-4 weeks, on S/X, ~2 weeks.
  • No SR/SR+ reservations pent up demand.
Tailwinds:
  • Maybe Korea will make up for it,
  • Model Y might be accelerated,
  • There's also potential FCA ZEV pool payments in Europe, around €10,000 per unit pure profit.
  • Norway might be a reserve kept from Q4.
  • No U.S. government shutdown, no Nasdaq crash so far, no Polar Vortex, no fears about a recession so far, and the China trade war appears less intense - so maybe U.S. sales will be stronger.
  • FSD magic might create new demand.
But right now it looks probable that Fremont will be under-utilized in Q1, which drop even ramping GF3 production might not keep up with.

On the plus side GF3 ramp-up might be a glorious highlight of Q1, year-over-year comparisons might still be favorable, and if Tesla can post marginal profits in Q1 then they'll probably meet the 12 months profitability S&P 500 inclusion criterion.
 
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I want to add some of my thoughts on the accounting for GF3. First some background on me: I have held CFO roles at 2 Fortune 50 companies in my career (now retired). Not the top CFO role but CFO of divisions/regions in these organizations. I also ran a manufacturing facility at one of these companies (not the finance role ....the GM). I am pretty well versed in manufacturing Cost Accounting.

Having also worked in Public Accounting for one of the Big Accounting firms for 10 years, I can tell you that even though there are Generally Accepted Accounting Principles (GAAP) for cost accounting, companies often have slight variations in how they apply and interpret GAAP. So my comments below may not be consistent with what Tesla is doing but it should be very close.

I could write pages and pages but let me hit on some of the areas that I see sometimes misunderstood by some members.

GF3 Costs are all Inventory/COGS: If a facility is dedicated to production, all costs at that facility will go to Inventory/Cost of Goods sold. None of the costs will go to SG&A. That means that general management, finance, HR, security, IT personnel in Shanghai will be part of overhead applied to production costs. Telsa has its China corporate office in Beijing....these costs go to SG&A. Tesla Sales Locations costs go to SG&A. All costs at Shanghai will go to Inventory/COGS. The only situation I have seen where costs do not go to COGS at a facility is the gain or loss on sale of equipment which is recorded in Other Income/Expense on the income statement. But we should not see any of this at Tesla at this moment.

Inventory vs COGS: Cost at the factory are classified as Material, Labor and Overhead (some fixed, some variable) and they all get capitalized to Inventory as the car is being produced. So all these costs sit on the balance sheet as Inventory until the moment the car is sold (ownership transfers to customer) and then at that point the Inventory gets released to Cost of Goods Sold (COGS). This allows for the matching of Revenues with COGS at the moment of sale.

So all of the GF3 costs thus far in 2019 are either on the balance sheet as Equipment or Inventory. There is one exception: The costs to train production workers (including their payroll) go straight to expense (does not get capitalized to inventory). So even it GF3 had no sales in 2019 (no revenue) they might still have slight COGS for training. But most likely no more than $2m.

Stat-Up Facility impact on Margins: When a new facility begins to ramp up, costs are typically higher. Material costs can be higher due to higher waste or rework of errors, Labor may be higher as new workers are not at top efficiency (taking more hours to complete a car as they get up the learning curve) and Overhead costs get spread over less units. For example Fixed Overhead cost in a month of $10m spread over 4,000 cars is $2,500 per car. But if you were to produce 12,000 cars, the $10m in Overhead would only be $833 per car. So the margins will be lower during the factory's start-up phase.

On this last point, my opinion is that although margins at Shanghai will be lower at start-up, they will still be positive. Meaning that if at full capacity the facility delivers $5,000 in gross profit per car, it is possible that at Start-up it is about $3,000 per car. The point I want to make here is that even if Tesla ships vehicles in December, it will not hurt financials. Margins are lower but they still make a profit.

Anyway - sorry for the long post - but I hope it helped.
I wish I had this information already a week or two ago.
 
I posted this before, but it got moved to another thread due to an OT reference, so here's an updated list of potential Q1 headwinds/tailwinds I see:
  • Q1 auto sales are seasonally weaker in the northern hemisphere.
  • Netherlands pulled a lot of Q1 demand to Q4 - possibly several months worth of.
  • German EV sales are still depressed due to VW and German government shenanigans, and it's unclear exactly when they'd announce the new incentives.
  • China Model 3 sales will be GF3 heavy, which might depress demand for Fremont made units.
  • UK's corporate car incentives will likely generate a spike in demand in March, but the magnitude is probably hard to judge, resulting either in missed sales, or extra UK inventory at the end of Q1. Fremont is too far away to ramp RHD cars dynamically based on March demand.
  • California state incentives were cut in December.
  • End of U.S. tax credit of $1,875 probably pulled 4-5 weeks of Q1 U.S. demand for SR+ to Q4. Effect on AWD/P should be 3-4 weeks, on S/X, ~2 weeks.
  • No SR/SR+ reservations pent up demand.
Tailwinds:
  • Maybe Korea will make up for it,
  • Model Y might be accelerated,
  • There's also potential FCA ZEV pool payments in Europe, around €10,000 per unit pure profit.
  • Norway might be a reserve kept from Q4.
  • No U.S. government shutdown, no Nasdaq crash so far, no Polar Vortex, no fears about a recession so far, and the China trade war appears less intense - so maybe U.S. sales will be stronger.
  • FSD magic might create new demand.
But right now it looks probable that Fremont will be under-utilized in Q1, which drop even ramping GF3 production might not keep up with.

On the plus side GF3 ramp-up might be a glorious highlight of Q1, year-over-year comparisons might still be favorable, and if Tesla can post marginal profits in Q1 then they'll probably meet the 12 months profitability S&P 500 inclusion criterion.

You forgot the deliveries to Iceland!
 
I posted this before, but it got moved to another thread due to an OT reference, so here's an updated list of potential Q1 headwinds/tailwinds I see:
  • Q1 auto sales are seasonally weaker in the northern hemisphere.
  • Netherlands pulled a lot of Q1 demand to Q4 - possibly several months worth of.
  • German EV sales are still depressed due to VW and German government shenanigans, and it's unclear exactly when they'd announce the new incentives.
  • China Model 3 sales will be GF3 heavy, which might depress demand for Fremont made units.
  • UK's corporate car incentives will likely generate a spike in demand in March, but the magnitude is probably hard to judge, resulting either in missed sales, or extra UK inventory at the end of Q1. Fremont is too far away to ramp RHD cars dynamically based on March demand.
  • California state incentives were cut in December.
  • End of U.S. tax credit of $1,875 probably pulled 4-5 weeks of Q1 U.S. demand for SR+ to Q4. Effect on AWD/P should be 3-4 weeks, on S/X, ~2 weeks.
  • No SR/SR+ reservations pent up demand.
Tailwinds:
  • Maybe Korea will make up for it,
  • Model Y might be accelerated,
  • There's also potential FCA ZEV pool payments in Europe, around €10,000 per unit pure profit.
  • Norway might be a reserve kept from Q4.
  • No U.S. government shutdown, no Nasdaq crash so far, no Polar Vortex, no fears about a recession so far, and the China trade war appears less intense - so maybe U.S. sales will be stronger.
  • FSD magic might create new demand.
But right now it looks probable that Fremont will be under-utilized in Q1, which drop even ramping GF3 production might not keep up with.

On the plus side GF3 ramp-up might be a glorious highlight of Q1, year-over-year comparisons might still be favorable, and if Tesla can post marginal profits in Q1 then they'll probably meet the 12 months profitability S&P 500 inclusion criterion.

Why are you not listing solar roofs under the tail wind category? Elon listed it as one of the two highest priorities for this year, and is targeting 1k/week in q1. So it seems like this ramp precedes Model Y ramp, which is not targeting 1k / week til mid-year, and thus is likelier to contribute to q1.
 
  • German EV sales are still depressed due to VW and German government shenanigans, and it's unclear exactly when they'd announce the new incentives.

Triggered by your post I looked at the German forum, there is a thread about the incentives. The government agency where you apply for the incentives has a message on their website saying due to the upcoming changes they are unvailable and back on January 2 (day after the New Year holiday). This is being interpreted as the new incentive scheme becoming active at the beginning of 2020. Promising, but not certain.

EDIT: Source: BAFA Umweltprämie für Model 3 • TFF Forum - Tesla Fahrer & Freunde
 
Why are you not listing solar roofs under the tail wind category? Elon listed it as one of the two highest priorities for this year, and is targeting 1k/week in q1. So it seems like this ramp precedes Model Y ramp, which is not targeting 1k / week til mid-year, and thus is likelier to contribute to q1.

Maybe, but solar installation is IMO hard to ramp, and winter is also not the best season to do it in most of the northern hemisphere. I'd like to be pleasantly surprised about solar, but it's been in hibernation for a long time.
 
Not to make a nice weekend less nice, but is appears FERC (the Fossil Energy Reinforcement Commission Federal Energy Regulatory Commission) has given America a lump of coal for Christmas. :(

FERC "announced a directive just a few days before Christmas which will require PJM Interconnection to raise prices of wind and solar power to be in line with the cost of fossil fuels — a move slammed by the Union of Concerned Scientists which believes it will increase the cost of electricity to consumers between $2 billion and $8 billion per year." From: FERC Sides With Fossil Fuels In Forcing Renewables To Match Prices | CleanTechnica

The rationale evidently is that some States subsidize clean energy and that makes things tougher for the fossil fuel industry, the most heavily subsidized industry on earth.

FERC site: FERC Directs PJM to Expand Minimum Offer Price Rule

Not sure what the impact will be on the energy side of Tesla's business, but probably not helpful.

Hmmm. From PJM - About PJM
PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia.

My take, likely to be widely off the mark, is that this is actually a positive for renewables. If you're an electricity supplier to PJM, and you can sell to them at a price comparable to that of Coal, Nuclear or Gas, but have to match those prices, if your cost to produce (ex-subsidy) is less than those others, you make more margin. Now if the subsidies excluded push your price over that of the competition, you'd lose sales, but I don't think those eastern states have much in the way of subsidies for solar, and anyway I think the cost of solar is competitive even without subsidies, so it just encourages them to build even more?

Of course it sounds bad (and is certainly bad for the environment) so maybe it will help the shorts to spin some more.
 
Triggered by your post I looked at the German forum, there is a thread about the incentives. The government agency where you apply for the incentives has a message on their website saying due to the upcoming changes they are unvailable and back on January 2 (day after the New Year holiday). This is being interpreted as the new incentive scheme becoming active at the beginning of 2020. Promising, but not certain.

EDIT: Source: BAFA Umweltprämie für Model 3 • TFF Forum - Tesla Fahrer & Freunde

Thanks for the link - one of the comments claims that for the new incentives to be in place a law has to be modified, accepted by the German legislature and published formally. If that's true then I doubt the new incentives would be in place by January 2.
 
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Tailwinds:
  • Maybe Korea will make up for it,
  • Norway might be a reserve kept from Q4.
But right now it looks probable that Fremont will be under-utilized in Q1, which drop even ramping GF3 production might not keep up with.
I suggest combining those two bullet points into something like:
Customers awaiting cars in multiple markets: list

Tesla prioritizes deliveries to markets with looming subsidy or tax deadlines, Q4 was US & NL

Customers are awaiting delivery in deferred or new markets, most likely including:
Iceland :)
England
Ireland,
Norway
South Korea
China -> New GF3 orders not filled until Q2
... haven’t seen any estimates of the number of customers waiting but it is a tailwind nonetheless

I believe there are still countries where Tesla accepted reservations for Model 3 and customers are still waiting, including India, although not relevant to Q1 2020
 
Triggered by your post I looked at the German forum, there is a thread about the incentives. The government agency where you apply for the incentives has a message on their website saying due to the upcoming changes they are unvailable and back on January 2 (day after the New Year holiday). This is being interpreted as the new incentive scheme becoming active at the beginning of 2020. Promising, but not certain.

EDIT: Source: BAFA Umweltprämie für Model 3 • TFF Forum - Tesla Fahrer & Freunde

Reading through the German Forum it sounds indeed as if the new regulation will be active early in Jan. Many people have been waiting with their orders as its partly a 50% increase of the incentive or €2k which is significant.

No reason comes to my mind with the authority would ask people to wait while they do the required regulation changes until Jan 2nd and then ask to wait longer which would not be in the interest of any party.

Sounds reasonable to me that we will have an incremental wave of orders that did wait for that moment in Q1 in Germany.
 
My take, likely to be widely off the mark, is that this is actually a positive for renewables. If you're an electricity supplier to PJM, and you can sell to them at a price comparable to that of Coal, Nuclear or Gas, but have to match those prices, if your cost to produce (ex-subsidy) is less than those others, you make more margin.

Exactly, that's my take too: the Trump administration just forced renewable energy providers into a highly lucrative, high margin energy pricing cartel, without much of an advantage to coal based generators.

Bad for emissions, totally good for green energy providers - unless we missed some additional shenanigans.

Maybe @brian45011 can offer some insight?