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

RFernatt

Solar/EV Owner/Enthusiast
Supporting Member
Oct 13, 2016
645
3,365
Eastern Panhandle, West Virginia
States where dealers pay large sums of money for influence over local politicians.

Or, in the case of WV, when the politicians are automall owners themselves like our former Senate president. No issues there whatsoever. :rolleyes:

A government hands off free market is great until competition threatens your market. Then, you need the government to protect deale..., um, consumers.
 

dhrivnak

Active Member
Jan 8, 2011
4,493
3,756
NE Tennessee
Gene tends to be conservative. I agree with him that Tesla cannot maintain 75-80% US EV market share forever, but with Model Y coming online in 2020 and no compelling new offerings from competitors I doubt Tesla's US market share will drop much if at all. Market share could even increase a bit, despite Tesla having two hands tied behind its back:
  • $7500 tax credit disadvantage
  • Direct sales banned or restricted in many states
full



Tesla Direct Sales Map (US)
And reality the situation is worse than the map indicates as in TN there is only ONE store allowed to sell.
 

⚡️ELECTROMAN⚡️

Active Member
Jul 15, 2016
2,858
5,067
Pacific Northwest
Q1 is traditionally the weakest part of the year in the auto industry. Tesla has been somewhat exempt from that on a few occasions, but only because due to some havoc part of the year-end deliveries slipped into Q1.
But if they are selling every M3 they can make then why wouldn’t they have a profitable Q1? Because of S and X demand? Q1 this year was horrible for obvious reasons. They have overseas delivery logistics figured out for 2020, so it should be a good quarter.
 
Aug 6, 2019
914
32,325
Connecticut, USA
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.
 
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mrdoubleb

Supporting Member
Supporting Member
Jul 2, 2013
2,603
14,423
Budapest, Hungary
Thanks for expounding.
I think the Q3 call sets the stage that, even if they were saying Q1 was tough from a profitability standpoint previously, things have improved such that they will be profitable (barring any huge one time P&L line startup costs).

GF3 is going strong and should continue to as long as they are fed packs. Y is expected to hit 1k per week by mid 2020. Tesla Energy is ramping up on both solar and storage. FSD may get a useful release as soon as Q1. Order backlog
is strong (US deliveries are not till March) and they are adjusting pricing as a result. So I see Q1 being green at this point.
Hey, I'm not gonna complain if they surprise the markets with Q1 profits! :p
 

StealthP3D

Well-Known Member
Dec 12, 2018
9,748
77,867
Maple Falls, WA
In the post you quoted:



Elon said he thinks Q1 will be tough. Am I totally confused here??

Q1 was always seasonally slower than Q4, US tax credit is stepping down (even if less than previously). No matter what "tough" means in absolute numbers, if they have Q4 in the bag even if they include some additional cost for GF4, it makes sense IMHO to pay that now instead of Q1 - current quarter definitely has less uncertainty than next as it is almost over, while next hasn´t even started.

Remember this: Elon said Q1 2020 will be tough during the 2019 Q2 earnings call. That was after Elon started his new strategy of under-promising and over-delivering. And that is precisely what I think he was intending to do.

It was also before there was any certainty that Gigafactory 3 would be already ramping production in Q4. This will move some of the ramp expense into the strong Q4.

Also know that China is starved for Made in China Model 3's. My guess is they will not only have a smoother than expected ramp (it's not like they don't have a ton of experience building Model 3's) and they will be able to sell every one they can produce. Remember, there are juicy subsidies for buyers of the MIC Model 3 that didn't exist with the more expensive imported Model 3. From what I can see, TSLA is pulling out all the stops to get the cars produced and out into the wilds.

None of this was known when Musk said he thought Q1 would be "tough".

I'm banking on a profitable Q1, record production and delivery numbers (both this quarter and Q1) and inclusion in the S&P500 Index. Good times for TSLA shareholders, bad times for TSLA shorts.
 
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mrdoubleb

Supporting Member
Supporting Member
Jul 2, 2013
2,603
14,423
Budapest, Hungary
But if they are selling every M3 they can make then why wouldn’t they have a profitable Q1? Because of S and X demand? Q1 this year was horrible for obvious reasons. They have overseas delivery logistics figured out for 2020, so it should be a good quarter.
I guess the question is do they have enough Q1 demand for 105k+ deliveries? There could be a temporary dip. But let's hope that does not happen.
 
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pnungesser

BarNun
Dec 9, 2015
284
1,327
Mill Spring, NC
That would be wicked :D
I guess profitability should be huge in Q4 for covering also GF3 initial costs.
We will see february financial report unless someone can evaluate the theoretical amount of GF3 cost due to be included in Q4 if it gets into Q4 financials.
I remember the bank loan in march was $521million. Adding the new loan of few days ago $1,5bn gives the total predicted cost of $2bn.
I thought the new loan included paying off the older loan. If I'm doing my math correctly, they will only owe the $1.5B, and have an additional $1.0B to work with.
 
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tinm

2020 Model S LR+ Owner
May 3, 2015
2,463
11,890
New Mexico, USA
Gene tends to be conservative. I agree with him that Tesla cannot maintain 75-80% US EV market share forever, but with Model Y coming online in 2020 and no compelling new offerings from competitors I doubt Tesla's US market share will drop much if at all. Market share could even increase a bit, despite Tesla having two hands tied behind its back:
  • $7500 tax credit disadvantage
  • Direct sales banned or restricted in many states
full



Tesla Direct Sales Map (US)

Map is not accurate. Washington State has 3 service centers and a store.
 

StealthP3D

Well-Known Member
Dec 12, 2018
9,748
77,867
Maple Falls, WA
I guess the question is do they have enough Q1 demand dor 105k+ deliveries? There could be a temporary dip. But let's hope that does not happen.

I think delivering over 105,000 in Q1 will be a cakewalk. Yes, deliveries of made in Fremont cars will decline Q over Q, but demand for made in China Model 3's with the new lower cost AND government tax incentives will skyrocket. The net effect will be MORE cars delivered in Q1 than Q4.
 

mrdoubleb

Supporting Member
Supporting Member
Jul 2, 2013
2,603
14,423
Budapest, Hungary
I think delivering over 105,000 in Q1 will be a cakewalk. Yes, deliveries of made in Fremont cars will decline Q over Q, but demand for made in China Model 3's with the new lower cost AND government tax incentives will skyrocket. The net effect will be MORE cars delivered in Q1 than Q4.
Well if you split the same amount of deliveries / sales between two factories that is a net negative in terms of costs.

Not trying to sound all doom and gloom here, just saying you need more than that to pay for the costs assigned to GF3.
 
Aug 6, 2019
914
32,325
Connecticut, USA
Remember this: Elon said Q1 2020 will be tough during the 2019 Q2 earnings call. That was after Elon started his new strategy of under-promising and over-delivering. And that is precisely what I think he was intending to do.

It was also before there was any certainty that Gigafactory 3 would be already ramping production in Q4. This will move some of the ramp expense into the strong Q4.

Also know that China is starved for Made in China Model 3's. My guess is they will not only have a smoother than expected ramp (it's not like they don't have a ton of experience building Model 3's) and they will be able to sell every one they can produce. Remember, there are juicy subsidies for buyers of the MIC Model 3 that didn't exist with the more expensive imported Model 3. From what I can see, TSLA is pulling out all the stops to get the cars produced and out into the wilds.

None of this was known when Musk said he thought Q1 would be "tough".

I'm banking on a profitable Q1, record production and delivery numbers (both this quarter and Q1) and inclusion in the S&P500 Index. Good times for TSLA shareholders, bad times for TSLA shorts.

Agree with everything you said and want to add this about Q2. Elon's statement (see quote below) that "Q2 will be not as bad but still tough" was made before the increased confidence in MiC ramp up and the potential for Model Y to show up in Q2. So Q2 could be pretty darn good. Also let's not forget the last part of his statement "Q3 and Q4 next year will be incredible"...and this coming from a man who is beginning to under-promise and over-deliver.

"I think Q1 next year will be tough. I think Q3 or 4 will be good, Q1 will be tough. Q2 will be not as bad, but still tough. And then I see like Q3 and Q4 next year will be incredible."
 

EV Promoter

Member
Nov 30, 2019
335
926
Europe
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.
Great analysis Accountant, thanks, it sorts out the doubts ;)

I thought the new loan including paying off the older loan. If I'm doing my math correctly, they will only owe the $1.5B, and have an additional $1.0B to work with.
Yes, Tesla declared the new loan pays off the older.
The $2bn figure was just the projected cost declared at the beginning.
 
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