To qualify for the S&P, a company must have “Four straight quarters of positive as-reported earnings.” (Amongst other qualifiers). So it’ll be a year at least until Tesla can qualify. And it seems Q1 won’t show a profit, so that’ll reset the clock. Maybe in 2020.
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The coming Tesla cash cow and the short burn of the century
- Thread starter DaveT
- Start date
Wrong. Discussed many times that a lot of sites have incorrect information about the S&P requirements.
From the Q4 2018 shareholders letter (http://ir.teslamotors.com/static-files/0b913415-467d-4c0d-be4c-9225c2cb0ae0):
"Model 3 production volumes in Fremont should gradually continue to grow throughout 2019 and reach a sustained rate of 7,000 units per week by the end of the year. We are planning to continue to produce Model 3 vehicles at maximum production rates throughout 2019. Inclusive of Gigafactory Shanghai, where we are initially aiming for 3,000 Model 3 vehicles per week, our goal is to be able to produce 10,000 vehicles per week on a sustained basis. Barring unexpected challenges with Gigafactory Shanghai, we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020."
In other words, Tesla won't hit 10,000 Model 3s per week until last week of June, 2020.
This is disappointing.
Let's go back to August 2, 2017 during Tesla's Q2 2017 earnings call (Tesla (TSLA) Q2 2017 Results - Earnings Call Transcript):
"What we have ahead of us, of course, is an incredibly difficult production ramp. Nonetheless, I think we've got a great team, and I'm very confident that we will be able to reach a production rate of 10,000 vehicles per week towards the end of next year. And we remain – we believe on track to achieve a 5,000 unit week by the end of this year.
So, I would simply urge people to not get too caught up in what exactly falls within the exact calendar boundaries of a quarter, one quarter or the next, because when you have an exponentially growing production ramp, slight changes of a few weeks here or there can appear to have dramatic changes, but that is simply because of the arbitrary nature of when a quarter ends.
But what people should absolutely have zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year."
In other words, Elon promised a 10k/week Model 3 production rate by the end of 2018.
Somehow, that got pushed back by a whole 18 months.
Sure, Elon was more optimistic in the Q4 2018 earnings call saying they might be able to get Shanghai up and running before end of year at volume production, but that's stretching it. They might get some cars produced but certainly not at the 3000 cars/week rate.
Now that we have a full 18 month delay, I think this puts at risk any short squeeze. As Tesla is stuck at an average 7000/week Model 3 production rate this year, which isn't too much higher than the past few quarters. Further, average sales price will likely decline as quarters progress through the year, so while you're looking at profitable quarters in 2019, they might not be that much better than the past few quarters.
"Model 3 production volumes in Fremont should gradually continue to grow throughout 2019 and reach a sustained rate of 7,000 units per week by the end of the year. We are planning to continue to produce Model 3 vehicles at maximum production rates throughout 2019. Inclusive of Gigafactory Shanghai, where we are initially aiming for 3,000 Model 3 vehicles per week, our goal is to be able to produce 10,000 vehicles per week on a sustained basis. Barring unexpected challenges with Gigafactory Shanghai, we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020."
In other words, Tesla won't hit 10,000 Model 3s per week until last week of June, 2020.
This is disappointing.
Let's go back to August 2, 2017 during Tesla's Q2 2017 earnings call (Tesla (TSLA) Q2 2017 Results - Earnings Call Transcript):
"What we have ahead of us, of course, is an incredibly difficult production ramp. Nonetheless, I think we've got a great team, and I'm very confident that we will be able to reach a production rate of 10,000 vehicles per week towards the end of next year. And we remain – we believe on track to achieve a 5,000 unit week by the end of this year.
So, I would simply urge people to not get too caught up in what exactly falls within the exact calendar boundaries of a quarter, one quarter or the next, because when you have an exponentially growing production ramp, slight changes of a few weeks here or there can appear to have dramatic changes, but that is simply because of the arbitrary nature of when a quarter ends.
But what people should absolutely have zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year."
In other words, Elon promised a 10k/week Model 3 production rate by the end of 2018.
Somehow, that got pushed back by a whole 18 months.
Sure, Elon was more optimistic in the Q4 2018 earnings call saying they might be able to get Shanghai up and running before end of year at volume production, but that's stretching it. They might get some cars produced but certainly not at the 3000 cars/week rate.
Now that we have a full 18 month delay, I think this puts at risk any short squeeze. As Tesla is stuck at an average 7000/week Model 3 production rate this year, which isn't too much higher than the past few quarters. Further, average sales price will likely decline as quarters progress through the year, so while you're looking at profitable quarters in 2019, they might not be that much better than the past few quarters.
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I didn't realize that Q4 of 2019 was June, 2020.
Also, that is in excess of 500,000. The could produce at the 500,000 level for all, or most of, 2019 and that would still be true.
I didn't realize that Q4 of 2019 was June, 2020.
Also, that is in excess of 500,000. The could produce at the 500,000 level for all, or most of, 2019 and that would still be true.
Let's be realistic, Tesla won't be producing 500k cars in 2019. They'd be lucky to produce 400k as guided by their shareholder letter.
And the 500k unit production rate is "annualized", so basically they want to hit 10k/week sometime before end of June 2020. There's almost zero possibility that Tesla produces 10k/week of Model 3s by end of 2019.
sundaymorning
Active Member
No squeeze, but do you anticipate an orderly short exit? Short position has been steadily declining the past few months. Also, what do you think about their guidance for Tesla Energy adding to revenues/profits?
Tesla's kind of in a no-mans land right now, since they're not able to make the $35k at a decent margin so they can't drive demand and production up to levels where they can become more profitable.
It appears that the challenge to make let's say 15% gross margin on the $35k Model 3 is perhaps more difficult than Tesla is letting on. I think it's likely they won't be able to make 15% gross margin on the $35k Model 3 this year. What does that mean? It probably means that they will try to push off the $35k Model 3 for as long as possible... maybe even to Q4 this year.
Without the ability (nor the demand due to poor margins on $35k Model 3) to ramp to 10k/weekly quickly this year, Tesla loses it's leverage against the shorts.
Re: Tesla Energy - not very excited about it at this moment. It only adds nominal revenue and profit for 2019.
You seem to have missed the difference between "Model 3s" and "vehicles", and failed to bear in mind that they produce 80-100k S/X per year too.
@ggr
The Q2 2017 earnings calls starts out talking about Model 3, then references the ramp and vehicle rate. So that is ambiguous. However, if you reference the Q2 2017 letter, it says:
500k/yr -> 10k/ wk. Then add in the other calls/letters that originally planned more capEx to hit the 10k mark. That expansion didn't happen, and they are now shooting for 7k 3s on the existing lines. So, I'd say that quote was talking 10k for Model 3 only.
The 2019 call's 10k was definitely model 3, with 2-3k from GF3.
My guess on the change is that the current equipment is making more than expected, so the cost vs additional production justification is no longer there.
Fremont is projected to be 7k/wk, 350k/yr, GF3 at 3k/wk is 150k of standard range, GF4 (Europe) another 150k standard to start. That is 650k a year, the low end of the demand estimate.Then another GF (India?) with 150k and you're at 800k. Or they do expand Fremont to 500k/yr to hit it. If demand is 600k/yr no Fremont expansion needed (depending of geographic demand for the SR)
TheTalkingMule
Distributed Energy Enthusiast
I can't imagine there's an ordely way for shorts to exit from here. Tesla is profitable and rapidly expanding. Demand is through the roof and literally zero other carmakers will have a truly competitive product out in 2019.
That should give Tesla plenty of time to get GF3 running, hit 10k+/wk, and release a Model 3 in the high $30k's by end of year. That's more than enough to keep demand ramping exponentially. What's the problem?
That should give Tesla plenty of time to get GF3 running, hit 10k+/wk, and release a Model 3 in the high $30k's by end of year. That's more than enough to keep demand ramping exponentially. What's the problem?
Tesla's projected capex for 2019 is only $2.5B. In the Q3 report, Tesla said that anticipated capex for 2020 was $2.5-$3.0B.
In 2H 2018, Tesla had operating cash flow of $5.2B (annualized). That is enough to fund their projected capex for 2019 and 2020 with $5B to spare to pay off debt, shore up the balance sheet and maybe even have discretionary funds available for new projects or to accelerate production ramps.
And with revenue increasing and margins improving through 2019-20 their cash flow over the next two years could be even greater. IMO that is highly likely.
Tesla's current plan has it ramping to 10K per week Model 3 by mid-2020, and also ramping Model Y production up during 2020. The most recent info I've seen on Model Y production targets were 12K/week by Feb. 2021 (from the leaked document in October). https://electrek.co/2018/12/03/tesla-model-y-third-row-gigafactory-production-leaked-documents/
Even if we assume the Model Y production ramps more slowly than that document suggests (Tesla said the numbers are outdated), by the end of 2021 production could be at 600K Model 3s and 600K Model Ys. Plus production of Semi (probably still low volume), storage sales increasing 8X (100% per year for 3 years), solar roof ramping, plus Roadster and early stages of pickup sales.
For 2021, revenues could look something like:
1.1M 3/Y @$45K=$49.5B
100K S/X @$100K=$10B
Tesla Energy=$8B
Semi 10K@$165K=$1.65B
Roadster 3K@$210K=$630M
Pickup 50K@$50K=$2.5B
Service and other=$4B
Total= $76.3B
That's a CAGR from 2018 of about 52%.
Margins and cash flow on this product mix should be high (although held back a bit by products in the early stages of ramping). Profitability may improve as well, although I think Tesla is more focused on maximizing cash flow than GAAP profits, since cash is what allows them to fund expanded production.
While Tesla could fall short of these plans, there is also room for upside, including on 3/Y.
Also, how about that opex decrease in Q4? Pretty impressive and more operating leverage projected in 2019.
IMO they beat almost everyone's expectations on operating expenses in 2018 -- especially in Q3 and Q4 -- and the projection for more of the same in 2019 seems extremely positive to me. Their more efficient business model -- selling cars and energy over the internet -- looks like it is paying off.
In 2H 2018, Tesla had operating cash flow of $5.2B (annualized). That is enough to fund their projected capex for 2019 and 2020 with $5B to spare to pay off debt, shore up the balance sheet and maybe even have discretionary funds available for new projects or to accelerate production ramps.
And with revenue increasing and margins improving through 2019-20 their cash flow over the next two years could be even greater. IMO that is highly likely.
Tesla's current plan has it ramping to 10K per week Model 3 by mid-2020, and also ramping Model Y production up during 2020. The most recent info I've seen on Model Y production targets were 12K/week by Feb. 2021 (from the leaked document in October). https://electrek.co/2018/12/03/tesla-model-y-third-row-gigafactory-production-leaked-documents/
Even if we assume the Model Y production ramps more slowly than that document suggests (Tesla said the numbers are outdated), by the end of 2021 production could be at 600K Model 3s and 600K Model Ys. Plus production of Semi (probably still low volume), storage sales increasing 8X (100% per year for 3 years), solar roof ramping, plus Roadster and early stages of pickup sales.
For 2021, revenues could look something like:
1.1M 3/Y @$45K=$49.5B
100K S/X @$100K=$10B
Tesla Energy=$8B
Semi 10K@$165K=$1.65B
Roadster 3K@$210K=$630M
Pickup 50K@$50K=$2.5B
Service and other=$4B
Total= $76.3B
That's a CAGR from 2018 of about 52%.
Margins and cash flow on this product mix should be high (although held back a bit by products in the early stages of ramping). Profitability may improve as well, although I think Tesla is more focused on maximizing cash flow than GAAP profits, since cash is what allows them to fund expanded production.
While Tesla could fall short of these plans, there is also room for upside, including on 3/Y.
Also, how about that opex decrease in Q4? Pretty impressive and more operating leverage projected in 2019.
IMO they beat almost everyone's expectations on operating expenses in 2018 -- especially in Q3 and Q4 -- and the projection for more of the same in 2019 seems extremely positive to me. Their more efficient business model -- selling cars and energy over the internet -- looks like it is paying off.
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I had high hopes when Elon said we should have zero doubt about 10k/week by end of 2018. My understanding is that they planned to optimize one line at 5k/week and then essentially duplicate it.
I believe they made a strategic change to go to only 7k/week in Fremont and that there were two reasons for the change:
1) More cap efficiency by speeding up the current line to its max.
2) Rather than make the entire world’s Model 3’s at Fremont, they would much prefer China deliveries to be built in China. I wonder when a European GF will come into play?
On the negative side, I do wonder if they were over optimistic on the costs for the SR Model because at the time they still had hopes of a very high level of automation that didn’t pan out as planned. If true, they may not have enough demand in 2019 for MR and above, so they need to slow the ramp anyway to wring more costs out of production.
10K probably now envelopes the Model Y production at Fremont. A guess is that the model Y assembly is done in the space of the failed model 3 assembly that was replaced by the tent.
Demand for cars that Tesla can make profitably is not "through the roof". But demand probably will be good enough until the Model Y arrives.
Tesla has given many indications of current demand limits for more expensive EVs that anyone even remotely interested in reality should be able to perceive,
You could be right, but it seems to me that if they were simply capable of downgrading the high tech line they would not need the tent. IIRC they have currently have an inside line, and the tent line. The original plan at current volume was two lines.
Making the model Y in Fremont is also confusing. Whatever they are setting up they will want to be able to flex production between the 3 and Y.
Maybe I should rename this thread to "Elon's failed short burn".
Singer3000
Member
The failure of the “short burn of the century” was surely the moment that the privatisation sunk. That was the event that could have spiked the price in strange ways.
I agree that the slow progress to 10k/week Model 3 versus prior guidance is indicative of earlier hubris. But they’ll surely get there. The Shanghai plant will only build SR/MR and given superior info now versus 2016/7, will presumably be capable of the 15-25% margin for those products once initial ramp is complete. There’s your 10k but achieved in a far more efficient manner than cramming it all into Fremont and shipping around the world dodging trade war torpedos.
Acceptable margins on the SR at Fremont is another question. The optics of launching the SR in China before the US would be tricky, so I have confidence costs will be down sufficiently to achieve this before long. It’s the SR non-PUP that’ll be the hardest step down.
A10k global rate roughly a year from now is still an impressive achievement but the execution delay explains why the stock has bounced about rather than soared. It should also give pause to anyone expecting 1m Model Ys in 2022.
All said, doesn’t mean that the company isn’t doing amazing things and that the stock isn’t substantially undervalued.
The jump from S/X to 3 is the hardest Tesla will ever have to make, be it from the perspective of manufacturing efficiency/complexity, supplier chain management, opex containment, delivery logistics and demand creation. Unless you’re in a mighty hurry, don’t be too harsh with your scorecard. Model 3 to Model Y should be a far easier step, especially so if they already have Shanghai pumping out cars by then.
I agree that the slow progress to 10k/week Model 3 versus prior guidance is indicative of earlier hubris. But they’ll surely get there. The Shanghai plant will only build SR/MR and given superior info now versus 2016/7, will presumably be capable of the 15-25% margin for those products once initial ramp is complete. There’s your 10k but achieved in a far more efficient manner than cramming it all into Fremont and shipping around the world dodging trade war torpedos.
Acceptable margins on the SR at Fremont is another question. The optics of launching the SR in China before the US would be tricky, so I have confidence costs will be down sufficiently to achieve this before long. It’s the SR non-PUP that’ll be the hardest step down.
A10k global rate roughly a year from now is still an impressive achievement but the execution delay explains why the stock has bounced about rather than soared. It should also give pause to anyone expecting 1m Model Ys in 2022.
All said, doesn’t mean that the company isn’t doing amazing things and that the stock isn’t substantially undervalued.
The jump from S/X to 3 is the hardest Tesla will ever have to make, be it from the perspective of manufacturing efficiency/complexity, supplier chain management, opex containment, delivery logistics and demand creation. Unless you’re in a mighty hurry, don’t be too harsh with your scorecard. Model 3 to Model Y should be a far easier step, especially so if they already have Shanghai pumping out cars by then.
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