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

[The Accountant]

I agree there may be some tracking on Cost of Sales, but negative expense doesn't make sense to me.

The current regulatory credits are payments from other OEMs for credits, thus revenue. The new IRA manufacturing credits are direct tax offsets, and vehicle credits are also direct tax offsets (if retained). So tax reduction should be 1:1; whereas, if included as income or expense offsets, they would only be partially recognized.

Seems like there would be a line in the 10K showing tax offset due to credits. (or else in their tax filing which I think would be publicly accessible).

I see. I had not read that portion of the bill. If these are tax credits . . . then to the extent that Tesla receives them, they would reduce the tax expense line and their details would likely be reported in the Tax footnotes of the 10K/10Q.

However as @Accident noted HERE, Tesla may not get the benefit of these credits due to the minimum 15% tax requirement.

 

[Knightshade]

I believe the 15% is on global profits as per the 10k/10Q (book income not tax income). Since Tesla already pays about 11% globally, the increased taxes will only be about 4% for Tesla. However, there are some deductions that will be allowed which can bring this additional 4% down.
I have not done a deep dive on this but this is my understanding at the moment.

Curious if there's any implications for all those deferred tax credits Tesla has kept not recognizing so far?

 

[The Accountant]

Curious if there's any implications for all those deferred tax credits Tesla has kept not recognizing so far?

I believe so. We may need to hear from @CreativeName or @st_lopes (out corporate tax gurus) but I think the recognition of the Deferred Tax Asset won't happen all at once as we have been anticipating. If the top US rate is 21% and the minimum is now 15%, then Tesla may only recognize this Deferred Tax Asset in drips over many years rather than all at once. Some of the Deferred Tax Assets as they related to Net Operating Loss Carryforwards may expire without ever being used. This won't impact any analyst's forecasts in any material way imo.

 

[mongo]

I see. I had not read that portion of the bill. If these are tax credits . . . then to the extent that Tesla receives them, they would reduce the tax expense line and their details would likely be reported in the Tax footnotes of the 10K/10Q.

However as @Accident noted HERE, Tesla may not get the benefit of these credits due to the minimum 15% tax requirement.

@CHGolferJim @Accident
Hummm....
Again, not an accountant, but it seems like credits would be applied to the tax bill, whether generated by 15% minimum or 21% standard. Up to 75% with carry forward of excess.
This seems like a good overview:
https://crsreports.congress.gov/product/pdf/IF/IF12179

Credits Allowed
Credits would be allowed for the minimum tax. Domestic credits under the general business tax (such as the R&D credit) would be allowed to offset up to 75% of the combined regular and minimum tax. Foreign tax credits would be allowed based on the allowance for foreign taxes paid in a corporation’s financial statement. A credit for additional minimum tax could be carried over to future years to offset regular tax when that tax is higher.

 

[insaneoctane]

Good idea, but I'd take it a step further. What Tesla calls "Models" appear to be called "Brands" at other automakers, e.g. GM has Chevrolet, Buick, Cadillac, etc. Perhaps Tesla's S, X, 3 & Y could be given full-word brand names. Then within each brand could be several models depending on how they are configured, as is done with other automakers. This may deconfuse Moody's.

Of course the real problem at Moody's may be that Tesla is not paying them to conduct credit rating reviews.

I've been thinking about this lame excuse that Moody's provided. It's just so flawed and either reveals bias or incompetence, or both...Tesla currently has a battery cell starved energy division that could be phenomenal, today, if Tesla prioritized it. If Tesla wasn't prioritizing the current products due to backlogs driven by unprecedented demand, they would be expanding their product lines...but they are purposely executing their business strategy of maximizing profits and efficiency at the expense of breadth. If the insatiable demand softened, they would certainly pivot into these options. What an incredibly powerful position to be in....only not according to a credit rating agency? They disagree with Tesla's choice to focus on the existing highest margin backlog. Absolutely brilliant by Tesla and pathetic by Moody's.

 

[jerry33]

Some of the Deferred Tax Assets as they related to Net Operating Loss Carryforwards may expire without ever being used. This won't impact any analyst's forecasts in any material way imo.

Ah. Just the same as sales increases and margin increases.

 

[insaneoctane]

First Cadillac. Now Buick.

Reuters - GM offers Buick dealers buyouts

"GM booked a total of $274 million in costs during 2020 and 2021 related to the effort to buy out Cadillac dealers who were not prepared to invest $200,000 to $500,000 per store in the equipment and training to support the brand's shift to an all-electric vehicle lineup, planned by 2030."

I'm sure that the buying experience at these newly equipped and trained dealerships will be sooo different....Lipstick on a pig.

 

[The Accountant]

@CHGolferJim @Accident
Hummm....
Again, not an accountant, but it seems like credits would be applied to the tax bill, whether generated by 15% minimum or 21% standard. Up to 75% with carry forward of excess.
This seems like a good overview:
https://crsreports.congress.gov/product/pdf/IF/IF12179

Thanks.

In researching this, I also found:

"Under new Sec. 6418, eligible taxpayers generally can transfer these credits (except the qualified commercial vehicle credit) in any tax year to another taxpayer. Any amount paid by the transferee taxpayer must be in cash, is not deductible by the transferee taxpayer, and is not included in the transferor taxpayer's income."

It appears that if Tesla generates credits in excess of it's tax liability, it can sell them to another tax payer. I think I am reading this correctly but we will need to hear more from tax experts.

So it's possible that if Tesla generates the huge credit dollars that @Gigapress is projecting, Tesla could sell the credits if they have no tax need for them.

 

[mongo]

Thanks.

In researching this, I also found:

"Under new Sec. 6418, eligible taxpayers generally can transfer these credits (except the qualified commercial vehicle credit) in any tax year to another taxpayer. Any amount paid by the transferee taxpayer must be in cash, is not deductible by the transferee taxpayer, and is not included in the transferor taxpayer's income."

It appears that if Tesla generates credits in excess of it's tax liability, it can sell them to another tax payer. I think I am reading this correctly but we will need to hear more from tax experts.

So it's possible that if Tesla generates the huge credit dollars that @Gigapress is projecting, Tesla could sell the credits if they have no tax need for them.

So sell credits at 80% face value and everybody wins versus aquire a huge backlog for future use?

 

[oldTAVguy]

OT

SLS Scrub.

 

[Usain]

Thanks.

In researching this, I also found:

"Under new Sec. 6418, eligible taxpayers generally can transfer these credits (except the qualified commercial vehicle credit) in any tax year to another taxpayer. Any amount paid by the transferee taxpayer must be in cash, is not deductible by the transferee taxpayer, and is not included in the transferor taxpayer's income."

It appears that if Tesla generates credits in excess of it's tax liability, it can sell them to another tax payer. I think I am reading this correctly but we will need to hear more from tax experts.

So it's possible that if Tesla generates the huge credit dollars that @Gigapress is projecting, Tesla could sell the credits if they have no tax need for them.

It was my understanding from Bradford Ferguson on the Limiting Factor that for the first 5 years, the tax credits under advanced manufacturing would be refundable. So Tesla would just get cash from the government.

 

[AudubonB]

"GM booked a total of $274 million in costs during 2020 and 2021 related to the effort to buy out Cadillac dealers who were not prepared to invest $200,000 to $500,000 per store in the equipment and training to support the brand's shift to an all-electric vehicle lineup, planned by 2030."

I'm sure that the buying experience at these newly equipped and trained dealerships will be sooo different....Lipstick on a pig.

Both Ford’s and GM-Cadillac’s moves leave me completely confused. The Chinese Wall between auto manufacturers and dealerships not only has been in place in the US for just about a century, but it is what has been flummoxing Tesla, as all here are consistently aware, in its attempts to have direct sales in all 50 states.

 

[Paul_SF]

Elon is right, Moody’s is completely irrelevant, for Tesla.

What’s going on is the analysts dinosaurs of funds that still have this stupid rule of no investing in companies that are not listed as investment grade by this irrelevant entity, are going to be the ones that will pay any price after the entities that have all the shares they want will front run that “upgrade”.

Those idiots analysts that waste their lives and just show up for a salary at those funds, don’t care anyway.

They are just “following the rules”, it’s not their fault they haven’t got their funds invested in the future biggest company in history of humanity.

They are “doing their job” and they don’t care about maximizing the profits of the funds. They still get their salaries and dream about the day when they’ll retire.

It’s the games WS always played and they don’t give a *sugar*, they are making all the money they want. Up and down!

They ruled this game forever and it seems nobody can do anything to this crooks. Unfortunately.

 

[Gigapress]

The reason I have avge revenue per vehicle (ARPV) declining is that I anticipate the introduction of a 2/Z class compact (and derivatives) at approx $30k >> $28k, and a rather utilitarian van (and derivatives) entering at $40k >>$28k. I also have Cybertruck and Semi entering at higher price points by the way. The underlying point is that I am more conservative than you are in anticipating what may come. This is in part because I think that the "mission" will logically lead Tesla to bring in these lower price (and cost) vehicles with (in absolute terms) slimmer gross profit per vehicle (GP/V) so as to satisfy the needs of the market. It may be that I am wrong on timing of these new model introductions but in my opinion one day they, or something much like them, will come through. In this may I gently suggest that it helps to see the global perspective, not just the USA-perspective. Also there is the issue of reversion-to-the-mean which is a strong pattern in human history even when paradigm shifts occur, and I don't think it is done with humanity yet. So yes, whilst I see and honour the ongoing GP/V and ARPV short-term surges based on excellent 3/Y and S/X performance, so too do I see and respect the strong and persistent longer term trends that Tesla also exhibits of declining ARPV and declining GP/V.

(As a side note my view is that Robotaxi, if it ever comes, will be a service utilising a variety of the Tesla products. It need not only be one specific vehicle. So not only do I not allow for revenue from Robotaxi in my financial projections (or for FSD, which is the necessary precursor); but so too do I not have an item called "Robotaxi" in my product line up.)

From a share price perspective to an extent what matters is what is actually happening. However also it matters greatly what the sentiment is about what will come. The hardbitten cynic and pessimist that I am, even so I have constructed a financial model and valuation that gets to 20m vehicles/yr by 2030 (etc). I suggest that the mainstream prospective buyers of TSLA stock will be even more conservative than I am. Given that shareprice (absent short term shenanigans) is set by the marginal buyer/seller, it is those who are even more conservative than I am in their projections who will likely set the TSLA share price at that marginal transaction. The downside of being too optimistic (even if correct) is that one is never satisfied with the market's actual current valuation, nor even understanding of it. This in turn can cause trading errors, and emotional upset because one is always holding out for a vastly better tomorrow.

TLDR : I much prefer upside surprises than downside diasappointments. So too do fund managers.

View attachment 848501

Next year’s avg rev per veh (ARPV) *will* be higher than $57.3k. We already had that in Q2! In what reasonable pessimistic scenario would ARPV stay flat in 2023 from last quarter, in which prices were hiked by like $6k for all vehicle variants for orders which have mostly not been fulfilled yet? Model Y is about $7k more than Model 3, and Y is guaranteed to increase its share of mix. For zero ARPV growth to happen, basically Tesla would have to pivot into making only the low-tier variants of of S3XY lineup, cancelling FSD as an option and making all of the upgrades like paint free.

If the cheaper model arrives, it’s definitely not going to be next year in any significant volume, nor in 2024, not only because it’s unnecessary but also because Tesla doesn’t have production capacity for it and they are focusing on Y and Cybertruck production.

Even if ARPV were $57.3k next year with only 2.25M vehicles sold, how could it possibly drop to $43k on 4.1M sold in just one year? Do you have a breakdown of deliveries and ARPV by model?

The 2.25M production capacity for the models that had an ARPV of $57.3k would still exist and serve the same market segment in ‘24. Maybe pessimistically the ARPV would decay for these to $55k.​

​

In the most extreme case in which the entire YoY growth of 4.1-2.25= 1.85M vehicles somehow comes from this unannounced $30k Model 2/Z for which presently Tesla doesn’t even have a factory, what would be the ARPV?​

($55*2.25 + $30*1.85)/4.1 = $45k​

So even in a ludicrously pessimistic growth story for the next two years $43k ARPV for 2024 is absurdly unlikely.

Also, Tesla hasn’t even saturated demand for low-end 3&Y around $40k yet. The mission involves replacing oil consumption as fast as possible, and as Elon has repeatedly explained, the complexity of introducing new models actually would reduce the total growth of vehicle deliveries when the existing lineup still isn’t keeping up with the pace of growth for orders. Affordability is a tool to help with selling more EVs but it isn’t the goal per se.

Besides, Tesla vehicles have radically better economics for affordability than ICE and hybrid cars in the first place. An average $30k ICEV might last 200k miles and have at least $0.20/mile higher average operating costs due to fuel and maintenance expenses the Tesla doesn’t incur. Over the 200k lifetime of the car, that’s $40k cumulative operating cost difference vs the EV (before time-value of money discounting). Additionally, a Tesla with an LFP battery back will last for longer than an ICEV. Even if we conservatively model for just an extra 100k miles of life compared to the ICEV, that lowers the effective price per mile a lot. The amortized ICEV price is $30k/200k = $0.15/mile; for the EV, $30/300=$0.10/mile. So the overall conservative per-mile saving for the cheap Tesla is $0.20+$0.05= $0.25/mile. The all-in cost of ownership for an average economy $30k ICEV including other costs like insurance and registration is usually around $0.50 per mile, so the EV cuts off roughly half of the total cost! A $30k Tesla is approximately economically equivalent to a $10k ICEV of comparable quality. We are years away from Tesla needing to sell anything at that price, unless they want a ten-year waitlist. Eventually, if robotaxis never work out, it will make sense to bring a $30k Tesla to market. To reach 20M+ vehicles per year I think Tesla will need at least some vehicles under $40k, but it’s not needed yet.

I usually look at Tesla prices in the USA because:

• This is Tesla’s first and biggest market and the one in which Tesla has the highest adoption rates of any major market (Norway is small). California and Seattle in particular are far ahead in Tesla adoption. Roughly half of all Teslas are sold in America. Adoption S-curves tend to be localized, so the USA will likely stay ahead in Tesla adoption for years to come and remain a large share of overall global sales.
• From my sampling of Tesla.com list prices in different countries around the world it looks like prices here in the USA are roughly representative of average global prices.
• Looking at only one market saves time and the information is conveniently all in English for US-centric stuff.

I do expect ARPV to decline eventually (again assuming no robotaxis) as Tesla expands the market, but it will take a long time and the ARPV will be higher than today’s $30k global vehicle ASP because of the aforementioned cost savings of EVs.

 

[Usain]

It was my understanding from Bradford Ferguson on the Limiting Factor that for the first 5 years, the tax credits under advanced manufacturing would be refundable. So Tesla would just get cash from the government.

Here it is from Bradford's blog:

What if a company doesn't have profits in the USA? Before scaling its Giga Texas plant, Tesla's profits are low or nonexistent in the United States because the costs of their headquarters and engineering is in the United States. If any company is not profitable in the USA to pay taxes for the first 5 years of this legislation, it will still receive the tax credit in the form of a direct payment.

So even if a long-standing US corporation pretends like their battery plant in a given state is not profitable in order to extract maximum government handouts, it will still receive the Advanced manufacturing production credit.

The "Advanced manufacturing production credit" Spells Big Profits for US EV Battery Makers

Commentary over the EV tax credit portion of the so-called Inflation Reduction Act (IRA) has completely missed portion as it relates to battery materials.

www.hffinancial.com

 

[lafrisbee]

Helping MamaBoomer Tesla with her fight by providing the best analogy I could think of...
An analogy... Moody's Rating is flawed because. Any business sector is like a slow-motion horse race. And Moody's thinks that betting on more horses is better than picking the horse that is the fastest and healthiest horse with the Best jockey (I was taught to bet the jockeys).

Moody's is like a bookie that disregards the track times of the horses in the race.... and determines how well the horses in the race will do based on how many horses are in their stable.

 

[Words of HABIT]

OT

SLS Scrub.

"Dubbed Artemis I, the mission will marks the first flight for both the SLS rocket and the Orion capsule, built under NASA contracts with Boeing Co and Lockheed Martin Corp." Setbacks are to be expected. This is rocket science after all.

"NASA has also awarded contract to SpaceX, which is scheduled to land NASA's Artemis 3 mission on the lunar surface in 2025 or 2026 — the first crewed moon touchdown since Apollo 17 in 1972. The company will use its huge, reusable Starship vehicle for the job."

"Google Search"

 

[mongo]

Both Ford’s and GM-Cadillac’s moves leave me completely confused. The Chinese Wall between auto manufacturers and dealerships not only has been in place in the US for just about a century, but it is what has been flummoxing Tesla, as all here are consistently aware, in its attempts to have direct sales in all 50 states.

Dealership laws (at least in Michigan) prevent OEMs from forcing dealerships to buy service equipment. The only way to preserve customer satisfaction by avoiding "X brand, but not EV service" situations is by buying out the dealership.

Section 445.1574

friendly link MOTOR VEHICLE FRANCHISE ACT (EXCERPT)

Act 118 of 1981

445.1574 Prohibited conduct by manufacturer.
Sec. 14.
(1) A manufacturer shall not do any of the following:
(a) Adopt, change, establish, or implement a plan or system for the allocation and distribution of new motor vehicles to new motor vehicle dealers that is arbitrary or capricious or based on unreasonable sales and service standards, or modify an existing plan or system that causes the plan or system to be arbitrary or capricious or based on unreasonable sales and service standards
(c) Refuse to deliver to a new motor vehicle dealer in reasonable quantities and within a reasonable time after receipt of the dealer's order, any new motor vehicles that are covered by the dealer agreement and specifically publicly advertised in this state by the manufacturer as available for immediate delivery. However, the failure to deliver any motor vehicle is not considered a violation of this act if the failure is due to an act of God, a work stoppage or delay due to a strike or labor difficulty, a shortage of materials, a lack of manufacturing capacity, a freight embargo, or other cause over which the manufacturer has no control. If a manufacturer requires a new motor vehicle dealer to purchase essential service tools with a purchase price in the aggregate of more than $7,500.00 in order to receive a specific model of vehicle, the manufacturer shall on written request provide the dealer with a good faith estimate in writing of the number of vehicles of that specific model the dealer will be allocated in the model year in which the dealer is required to purchase the tool.

(o) Require unreasonable improvements to a facility as a condition to entering into or renewing a dealer agreement.

 

[petit_bateau]

Next year’s avg rev per veh (ARPV) *will* be higher than $57.3k. We already had that in Q2! In what reasonable pessimistic scenario would ................. Do you have a breakdown of deliveries and ARPV by model?
..............

So even in a ludicrously pessimistic growth story for the next two years $43k ARPV for 2024 is absurdly unlikely.
...........
I do expect ARPV to decline eventually (again assuming no robotaxis) as Tesla expands the market, but it will take a long time and the ARPV will be higher than today’s $30k global vehicle ASP because of the aforementioned cost savings of EVs.

Yes I do have a per model etc breakdown that yields this. It is what drives the tables I put up, and it is substantially more pessimistic re pricing than yours, hence the 'snap' to a significantly lower ARPV in the near future. It may or may not be absurdly pessimistic but I think that nevertheless I am still more optimistic than mainstream fund managers. I appreciate this must be frustrating for you.

(It is arguably more optimistic than you in one respect, in that it assumes a 2/Z and van/etc product coming to market sooner than you are projecting, which is another element of the difference between our forecasts, as I assume cheaper models earlier than you do. But in other areas I worry that I am too optimistic - Tesla keeps on underperforming vs my forecasts in the energy sector, and are a smidge behind on the vehicle production metric. Maybe I should dial my pessimism another notch ).

As I have said before, I would like for my shareprice prediction from all this to be an under-forecast, and for yours to be better than mine.

 

[insaneoctane]

I still think when he said it’s his and Franz’s Magnum Opus, he is referring to the manufacturing process, not the truck itself.

I think a lot of people would be quite disappointed for Tesla to make such a huge deal launching the Cybertruck for $40k - $50k for the base 2 models and launching a $100k Supertruck for 2 - 2.5x as much. It’s not a good look.

I wouldn’t be surprised to see the 6 digit Supertruck out the gate, then a dual motor truck 3-6 months later though.

I'm totally uncertain of what Tesla will do with the pricing on CT mid to long term. Everyone here (including me) seems to agree that the first CTs are likely to be $100K+ high margin offerings. But with EM's comments at the shareholder meeting...
"Cybertruck pricing, it was unveiled in 2019, and the reservation was $99. A lot has changed since then, so the specs and the pricing will be different...I hate to give sort of a little bit of bad news, but I think there's no way to sort of have anticipated quite the inflation that we've seen and the various issues."

So, there are plenty of $39K reservations that aren't going to happen the way the buyers hoped....but what will the lower-end offering cost and how long will it take Tesla to address that market? Other than a $5K to $10K increase for inflation and stuff, how can you keep your product launch credibility if you don't try to come close?