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

[jhm]

I hear that some other automakers are really profitable when you exclude reg credits.

 

[PKEllefsen]

@The Accountant, thank you very much for updating the table. I love auto gross margin excluding reg credits.

As someone who works with pricing products on a daily basis - me too! Nothing better than Tesla's position either when it comes to margin. Being hard capped on production so they have all the pricing power in the world, and now also with inflation as the perfect excuse for raising the prices as much as they want despite minor cost increases in comparison. 2023 is going to be a crazy year for them unless major unforseen challenges arises.

 

[Chunky Jr.]

For margins to increase, is the assumption that average selling price was greater than any increases in parts/material costs? If so, is this a good assumption?

 

[TheTalkingMule]

Macros co-operating currently based on futures.....gonna be a wild one tomorrow for $TSLA....glad i have my degenerate TMC fam to cheer $TSLA on tomorrow!

A tumultuous time for sure, and a great space to sit and wait as springs uncoil and profits need to be accounted for.

Tesla and TSLA are both making the leap from giga scale to terra scale. The best part about TMC has always been sitting back and laughing as bears try to pair some logical picture other than an earnings deluge on top of exponential growth.

Fun week and a fun 5 months ahead as absurd demand and insane growth becomes harder and harder to deny.

 

[insaneoctane]

investors often speak of black swan events. I'd argue that Tesla is concluding a series of events that represent an equivalent of a black swan event. Nothing revolutionary to share here, but if you consider Tesla's trajectory before Covid and consider the massive amount of energy/calories that Tesla has needed to expend on mitigating:

• forced plant shutdowns
• chip and other shortages
• raw material volatility
• supply chain constraints
• inflation pressure on all COGS
• Transportation / logistic gridlocks
• etc.

It's beyond my imagination where we'd be if all that energy (or talent capability) had gone to more traditional growth challenges like the new factories ramping issues, supply chain bottlenecks, or the 4680 ramp.

Don't get me wrong, I'm so impressed with Tesla's navigation of all these challenges! I'm just stunned wondering how amazing things would be with Tesla's talent and capabilities more properly focused allowing greater efficiency....if the world wasn't on fire! I really hope we all get to see that answer soon!

 

[generalenthu]

I'm just stunned wondering how amazing things would be with Tesla's talent and capabilities more properly focused allowing greater efficiency....if the world wasn't on fire!

Contra: Disruptions accelerate change. Tesla might have done incrementally better volumes wise, but the world got to see Tesla's incredible agility, pricing power, and the perils of humanity being overly dependent on fossil fuels. That just delayed a couple of quarters, and I like the trade off of fewer ICE vehicles produced in the interim.

It certainly pulled forward the recognition of what TSLA is especially when you look at it from the lens of where TSLA was trading at the beginning of the year.

 

[Artful Dodger]

Not getting my hopes too high but there's a possibility for a gross margin increase.

What Gross Margin (GM) does Tesla need to print in 2022 Q2 to achieve an average GM of 30% over the past 4 quarters? I believe that is the trigger which releases the final tranche of Elon's 2012 CEO Compensation plan (which expires in Aug 2022 if not achieved). Thus, I expect this is the motivation and the actual goal, not some arbitrary level like 31% GM in Q2.

 

[CHGolferJim]

On Fast Money Gene Munster battled the negativity and said TSLA is a $2,500 stock in five years.

A year or two ago he was saying $2500 in 2023 if my notes are right.

 

[Mengy]

For margins to increase, is the assumption that average selling price was greater than any increases in parts/material costs? If so, is this a good assumption?

That's what many people are assuming will happen. I'm not convinced, I think the ASP slowly going higher will only be maintaining margins, not increasing them, due to inflationary pressures. That coupled with the Shanghai shutdown and I'm thinking we'll see margins go down a bit tonight in the Q2 ER, not up.
My hunch is we'll be below expectations tonight, and not opening very pretty in the morning.

Of course I'd love to be very wrong about this.....

 

[mongo]

What Gross Margin (GM) does Tesla need to print in 2022 Q2 to achieve an average GM of 30% over the past 4 quarters? I believe that is the trigger which releases the final tranche of Elon's 2012 CEO Compensation plan (which expires in Aug 2022 if not achieved). Thus, I expect this is the motivation and the actual goal, not some arbitrary level like 31% GM in Q2.

I think the requirement is >=30% each of the last four quarters, not average. From Q3 2012's 10-Q:

Gross margin of 30% or more for four consecutive quarters;

Given Tesla said this wasn't likely (as opposed to impossible) in the 2021 10-K recent filings, it may be automotive sector only including credits. Note: this plan seems to not get called out in 10-Qs after 2020 Q3, but it was still theoretically achievable, possibly not material?

As of December 31, 2021, the performance milestone of gross margin of 30% or more for four consecutive quarters was considered not probable of achievement for which the unrecognized stock-based compensation is immaterial. For the years ended December 31, 2021, 2020 and 2019, we did not record any stock-based compensation expense related to the 2012 CEO Performance Award.

Using this criteria, they are at three consecutive, in which case >=30% in Q2 would trigger it, along with an expense for the award. If so, Elon's exercise of it before expiration next month (Aug 12th ish) will also trigger more payroll tax.

 

[Artful Dodger]

That's what many people are assuming will happen. I'm not convinced, I think the ASP slowly going higher will only be maintaining margins, not increasing them, due to inflationary pressures. That coupled with the Shanghai shutdown and I'm thinking we'll see margins go down a bit tonight in the Q2 ER, not up.

It's not the incremental price increases we've seen over the past 12 months that will drive ASPs to new highs in 2022 Q2, it's the product mix: because Tesla was severely production constrained, they had the ability to shift deliveries to mostly the highest margin variants of each Model.

For example, we're heard annecdotal reports that Fremont hadn't made any Model 3 SR+ variants for months. Also, Model S deliveries were strongly weighted toward the Plaid variant, which has both a much higher ASP and higher margins.

Finally, Tesla even has so much demand that they could prioritized deliveries of cars with high-cost, high-margin software options like FSD, and re-introduced EAP in N. America which allows them to resell lease return Models 3 with a much higher sale price than it would otherwise have, and at close to 100% incremental margin for the S/W upgrade.

Some folks don't believe it, but used Tesla's were selling for $4,500 above retail in June (because customers are willing to pay to skip the line for a new Tesla, which could be 9-12 months or more).

TL;dr Gross Margins in Q2 2022 will be boosted by the premium product mix, the result of reduced supply + high demand.

Cheers!

 

[kcveins]

Going to be on a plane to Hawaii (vacation sorely needed) when results come out... my wife is insisting that we get the inflight WIFI so we can track earning results

 

[OrthoSurg]

Going to be on a plane to Hawaii (vacation sorely needed) when results come out... my wife is insisting that we get the inflight WIFI so we can track earning results

I would consider it for once. Probably the only time on flight wifi being money well spent

 

[ggies07]

Going to be on a plane to Hawaii (vacation sorely needed) when results come out... my wife is insisting that we get the inflight WIFI so we can track earning results

 

[thx1139]

Going to be on a plane to Hawaii (vacation sorely needed) when results come out... my wife is insisting that we get the inflight WIFI so we can track earning results

Dont do it. Cut yourself off. You need it.

 

[JustMe]

Going to be on a plane to Hawaii (vacation sorely needed) when results come out... my wife is insisting that we get the inflight WIFI so we can track earning results

Do it. Otherwise it’ll be on your mind while you’re supposed to be enjoying paradise.

Enjoy

 

[traxila]

Everyone that has paid attention to Tesla knows that Q2 has been tough. And that Tesla's legion of enemies are chomping at the bit to spin the results as the end of the world. Tesla being as popular as it is.... a lot of people are paying attention.

My two cents: everyone is waiting for a kitchen sink Q2 earnings report with the intention of buying heavily on the MM manufactured dip afterwards (this may or may not include me ).

But when everyone is waiting for something.... expectations rarely work out as expected.

 

[replicant]

Everyone that has paid attention to Tesla knows that Q2 has been tough. And that Tesla's legion of enemies are chomping at the bit to spin the results as the end of the world. Tesla being as popular as it is.... a lot of people are paying attention.

My two cents: everyone is waiting for a kitchen sink Q2 earnings report with the intention of buying heavily on the MM manufactured dip afterwards (this may or may not include me ).

But when everyone is waiting for something.... expectations rarely work out as expected.

That's the best part of being all-in. I don't care what happens with the market: I just ride it and let day traders fret about each and every wave.

PS: I have enough worries with climate change already. I live in Paris, and the two heat waves this July hit me quite hard. My pre-Haussmann appartment is becoming unlivable. It's still worth over €600K but I may have to abandon it. I mean sell it! The real estate market is set for a hard reckoning as the insufferable weather is becoming the norm. But people say we can't really afford a quick transition out of fossil fuel. What a stupid trade off…

 

[The Accountant]

What Gross Margin (GM) does Tesla need to print in 2022 Q2 to achieve an average GM of 30% over the past 4 quarters? I believe that is the trigger which releases the final tranche of Elon's 2012 CEO Compensation plan (which expires in Aug 2022 if not achieved). Thus, I expect this is the motivation and the actual goal, not some arbitrary level like 31% GM in Q2.

Here is the gross margin chart with my Q2 estimates.

I can't remember what we concluded last time we discussed this on which GMs are used.
If it's Auto gross margins (with credits), then I am computing 31.3% (trailing twelve months weighted average). I have 31% in Q2 but it can be as low as 27% to achieve the weighted average of 30% required for vesting.

The weighted average gross margins excluding credits are at 29.4% in my model. We would need to see Q2 GM ex. credits be north of 31% to reach the weighted average of 30%.

 

[thx1139]

Final update - now with Rob Maurer's numbers:
View attachment 830399

Trying to make sure I understand how the BTC and the Severance is being figured into the estimates.

Wall Street and Whisper numbers act like no one time charges and they expect $1.77 and $1.63. When you figure in the 1 time charges their numbers would be lower. So say or instance a released number that hits Gary Black could be better then the $1.77 since he takes into account the one time charges.

Everyone else is accounting for the charges.