TSLA Investor Discussions

[gg_got_a_tesla]

JP lost me at *2,000* Signature reservations as that presumably makes his "math" better.

 

[bmek]

I'm starting to wonder if JP knows absolutely nothing about GAAP or whether he's just being deliberately obtuse. That latest article is plain gobbledygook.

He's mixing up working capital with pure cash and suggesting that Tesla's financial situation worsens as deposits are converted to revenue, totally ignoring that those deposits are only a fraction of the total revenue stream from finalized car sales. Huh?

JP believes that the analysts did not model the deposits accurately. It appears that JP is concerned about TSLA's working capital and cash; revenues and income/loss are not affected by deposits. If the sales backlog stays the same or increases by less than a factor of eight ($40k/$5k), the smaller deposits ($5k per car) do not offset the reduction of the $40k deposits sitting on the balance sheet. A reduction in the rate of new deposits will decrease working capital.

The big, unanswered questions are, (1) what type of additional capital does TSLA raise (equity), (2) when does TSLA raise that additional capital, and (3) how much do they raise? The cost of that new capital will be lower when TSLA has a record of production through the Fremont plant although the more TSLA needs capital and the faster it needs capital, the higher the cost of that capital.

Overall, there will have to be dilution and new capital will be expensive. Offsetting that is the increase in value of the company. Which side will be greater?

 

[bonnie]

He's mixing up working capital with pure cash and suggesting that Tesla's financial situation worsens as deposits are converted to revenue, totally ignoring that those deposits are only a fraction of the total revenue stream from finalized car sales. Huh?

Pretty bad when a balance sheet noob like me can see the obvious miss. Embarrassing to be him.

 

[ckessel]

If the sales backlog stays the same or increases by less than a factor of eight ($40k/$5k), the smaller deposits ($5k per car) do not offset the reduction of the $40k deposits sitting on the balance sheet. A reduction in the rate of new deposits will decrease working capital.

Deposits have always been part of working capital, it wasn't in any sort of escrow fund (unless you live in WA which has a special state law).

Nigel made an absolute stellar post on it back here debunking some of the same lunacy JP is spouting today. One of my all time favorite posts on TMC.

 

[NigelM]

JP believes that the analysts did not model the deposits accurately. It appears that JP is concerned about TSLA's working capital and cash; revenues and income/loss are not affected by deposits.

Accounting is picky, so I'm going to allow myself to be picky (please forgive me in advance)....revenues and income are affected by deposits when those deposits are converted to revenue. JP ignores that point.

If the sales backlog stays the same or increases by less than a factor of eight ($40k/$5k), the smaller deposits ($5k per car) do not offset the reduction of the $40k deposits sitting on the balance sheet. A reduction in the rate of new deposits will decrease working capital.

True, but that ignores the fact that most of the Sig are looking like >$100k cars and average price of other cars is sounding like $75-80k right now. So there's additional cash inflow (revenue) of >$60k for every Sig and >$70k for every other car (that may drop once the smaller battery packs come online). That's new cash flow of $60m for the Sigs alone, plus (let's be real conservative and say that Tesla will only deliver the Sigs plus 1,000 cars this year) $70m from other cars giving $130m in total. Working capital is not compiled solely from deposits.

The big, unanswered questions are, (1) what type of additional capital does TSLA raise (equity), (2) when does TSLA raise that additional capital, and (3) how much do they raise?

Tesla/Elon said that raising new capital is always an option, but not one that they need right now.

Overall, there will have to be dilution...

Well that's an absolute (and you're entitled to your opinion) but I don't see it yet.

 

[tander]

JP lost me at *2,000* Signature reservations as that presumably makes his "math" better.

There are only 1000 Sig reserves correct? Or are there another 1000 international sig reserves?

 

[Doug_G]

There are only 1000 Sig reserves correct? Or are there another 1000 international sig reserves?

1000 USA, 200 Canadian, 500 European.

 

[vfx]

So Tesla has a $5000 deposit from an owner. Months later when the owner gives Tesla another $54,000 dollars at delivery of their Model S, then Tesla looses money?

I'm confused. Is John saying Tesla has already put $54,000 (or $59,000) on the books so deliveries are loosing money because of the cost of actually building and delivering the car has them spending money they up to that point were (not actually) sitting on? Is that what he's saying? I'm not even sure what I'm saying.

 

[Robert.Boston]

There might be a point vaguely similar to the one JP was making, but it's not the point he made:

Consider a Signature reservation. At the beginning of the year, Tesla had $40k of cash. The gross margin on the car is about 25%, so for a $100k Signature the COGS for the vehicle is (let's say) $75k. Therefore, at the end of this year, Tesla has $25k of cash in profits from the sale of the car, down from $40k of reservation cash. (Of course, Tesla no longer has an offsetting liability associated with the deposit, either.) So, in a sense, each Signature "costs" Tesla about $15k in net cash.

JP also seemed to be oblivious to the accelerating pace of reservations, adding cash to the coffers.

 

[Zzzz...]

So Tesla has a $5000 deposit from an owner. Months later when the owner gives Tesla another $54,000 dollars at delivery of their Model S, then Tesla looses money?

I'm confused. Is John saying Tesla has already put $54,000 (or $59,000) on the books so deliveries are loosing money because of the cost of actually building and delivering the car has them spending money they up to that point were (not actually) sitting on? Is that what he's saying? I'm not even sure what I'm saying.

JP pointing out "supposed" mistake made by Merrill Lynch and Morgan Stanle, that actual cash inflow from 2,230 sales(Morgan Stanle)/5,000 sales(Merrill Lynch) would not include deposits and total miscalculation is $81 million/$95 million respectively.

First, there would be only 1200 Signatures MAX delivered this year, so "miscalculation" if it is there would be way lower. In comments section JP suggested it would be QUOTE: "only $67 million for Merrill Lynch and $52.6 million for Morgan Stanley."

Second, JP conveniently "forgot" to mention that as production ramps up, there are more reservations coming, including Signature reservations for Model X.

Third, whole JP point is Tesla liquidity, presumption that Tesla Motors is about to run out of working capital and would need cash fast. First I do not believe that is the case. Elon was saying something that while they spent ~60 millions in a second quarter on capital expenditures he felt like that number was somewhat low and they they hoped to spend more buying new equipment. Not exactly the message you would expect to hear from company that have problem with working capital.

And above all, JP was predicting doomsday over and over again, I'll quote: "Collectively, these factors will leave Tesla in a position where its June 30, 2012 financial statements look like an absolute train wreck unless it sells a substantial amount of additional stock within the next three weeks.". Should I mention that so far Tesla have not raised any capital by selling a substantial amount of additional stock?

 

[al_chumley]

So Tesla has a $5000 deposit from an owner. Months later when the owner gives Tesla another $54,000 dollars at delivery of their Model S, then Tesla looses money?

I'm confused. Is John saying Tesla has already put $54,000 (or $59,000) on the books so deliveries are loosing money because of the cost of actually building and delivering the car has them spending money they up to that point were (not actually) sitting on? Is that what he's saying? I'm not even sure what I'm saying.

I was confused about this, too. I think he's trying to say that the analysts are not taking into account that the reservation part of the cost of the car has already been received - the analysts are modeling the full price of the car as new revenue.

BTW, Tesla's latest 10Q states that the reservations are counted as a liability on the books, but can be used for any purpose by Tesla:

"These amounts are recorded as current liabilities until the vehicle is delivered ... Amounts received by us as reservation payments are generally not restricted as to their use by us." - View Filing Data

 

[NigelM]

Consider a Signature reservation. At the beginning of the year, Tesla had $40k of cash. The gross margin on the car is about 25%, so for a $100k Signature the COGS for the vehicle is (let's say) $75k. Therefore, at the end of this year, Tesla has $25k of cash in profits from the sale of the car, down from $40k of reservation cash. (Of course, Tesla no longer has an offsetting liability associated with the deposit, either.) So, in a sense, each Signature "costs" Tesla about $15k in net cash.

Not at all, in your example Tesla receives $60k more cash from the customer than they had before. Comparing cash flow with net income is a bit apples and oranges.

 

[Robert.Boston]

Not at all, in your example Tesla receives $60k more cash from the customer than they had before. Comparing cash flow with net income is a bit apples and oranges.

Nigel, I was assuming that during the course of the year Tesla had to spend $75k to purchase materials and labor with which to construct the Model S, which they then sold for $100k. And I was trying to stay entirely on the cash issue, which seems to be JP's concern.

 

[NigelM]

I was confused about this, too. I think he's trying to say that the analysts are not taking into account that the reservation part of the cost of the car has already been received - the analysts are modeling the full price of the car as new revenue.

Accounting practice is that deposits are a balance sheet liability and may not be recognized as revenue until there is an irrevocable purchase contract or a completed sale. Deposits are however cash counted as part of the company's cash flow as they have free use of it unless it's in a jurisdiction where this is not allowed (e.g. WA state I believe). JP claims to be a CPA but seems to me he's forgotten some of the basics.

- - - Updated - - -

Nigel, I was assuming that during the course of the year Tesla had to spend $75k to purchase materials and labor with which to construct the Model S, which they then sold for $100k. And I was trying to stay entirely on the cash issue, which seems to be JP's concern.

If JP's concern is cash flow, then ignore profits/margins for a second....Tesla had $40k coming in as deposit and then $60k more when the car was delivered; this was positive for cash flow. If the concern is working capital the sum is entirely different and yes it could be argued that the effect on working capital is a $15k reduction but that would be disingenuous because working capital is also affected by e.g. inventory movements. In a fast moving consumer goods business working capital doesn't matter so much and although normally I wouldn't classify Tesla as FMCG, with an impatient and long waiting list they can recover cash from inventory pretty fast if they need to.

Let's take a look at using Petersen's Accounting Practices (from hereon to be known as "PAP" because that sounds like a good word to describe them): What JP misses (among other things) is that the number of Sigs is limited and the way he calculates it as soon as the first P number is released Tesla exchanges a $5k deposit for $25k cash profit on every $100k car and therefore working capital increases by $20k per car. So using PAP Tesla only needs to deliver 750 performance production cars and they covered all the 1,000 U.S. Sig cash "losses". (Note: that last paragraph bears little/no relationship to actual accounting practice).

 

[rolosrevenge]

There might be a point vaguely similar to the one JP was making, but it's not the point he made:

Consider a Signature reservation. At the beginning of the year, Tesla had $40k of cash. The gross margin on the car is about 25%, so for a $100k Signature the COGS for the vehicle is (let's say) $75k. Therefore, at the end of this year, Tesla has $25k of cash in profits from the sale of the car, down from $40k of reservation cash. (Of course, Tesla no longer has an offsetting liability associated with the deposit, either.) So, in a sense, each Signature "costs" Tesla about $15k in net cash.

JP also seemed to be oblivious to the accelerating pace of reservations, adding cash to the coffers.

And the fact that each WA sale (one of the highest reservation and sig reservation states) is 100% new cash for Tesla

 

[vfx]

Thanks for the answers. JP's PAP is so shortsighted that I could not follow.

I guess he's drinking his own flavor of "Tesla will fail" koolaid and assumes in his "calculations" that the company will only deliver Sig cars for a few months.

 

[aznt1217]

I fail to see the point of his editorials (if you'd even call it that). Aside from the fact that his math is wrong he clearly doesn't understand consumer products and vehicles. At Tesla's stage in the game the financials aren't going to tell you anything. Look at the product and the way that the company is managed. That's what Microsoft did when Apple was near the brink of bankruptcy and now look.

I also abhor the fact that he defends himself WAY too much and gets really snippy about it. He should put his money where his mouth is and go ahead and short the stock. I highly advise investors being influenced by what he is saying to tune out the noise and go with your gut and your own analysis. I'm doing that this time around and put my entire life savings into the equity. I know it isn't wise but I've seen the BETA product and came away impressed. I've read so many posts and also looked at the business model and management style of Elon Musk. It's VERY similar to Apple's so I put my money where my mouth is.

 

[tander]

I fail to see the point of his editorials (if you'd even call it that). Aside from the fact that his math is wrong he clearly doesn't understand consumer products and vehicles. At Tesla's stage in the game the financials aren't going to tell you anything. Look at the product and the way that the company is managed. That's what Microsoft did when Apple was near the brink of bankruptcy and now look.

I also abhor the fact that he defends himself WAY too much and gets really snippy about it. He should put his money where his mouth is and go ahead and short the stock. I highly advise investors being influenced by what he is saying to tune out the noise and go with your gut and your own analysis. I'm doing that this time around and put my entire life savings into the equity. I know it isn't wise but I've seen the BETA product and came away impressed. I've read so many posts and also looked at the business model and management style of Elon Musk. It's VERY similar to Apple's so I put my money where my mouth is.

Life savings? How bout them apples.

 

[daniel]

Posting about JP is a waste of effort. The guy is a doofus who has no regard for facts. He probably has a short position in TSLA and he's desperately trying to drive the stock down enough that he can get out without being wiped out.

Or just concvince yourself - and you can do anything, absolutely anything!

I think you're joking. But I've heard people say this with a straight face. Convince yourself all you like, you'll never be able to play the violin like Hilary Hahn, or beat Gary Kasperov at a game of chess, or fly by flapping your arms, or hold your breath for an hour, or re-grow an amputated leg.

Of course, there are many things you can do if you work at it hard enough. Believing you can do something may help motivate you to try. But I've done things that I went into not knowing if I could do them or not. The only really true statement about belief with regards to success, is that if you believe you cannot do something, you probably won't try. You don't have to believe you can succeed in order to succeed. You just have to believe there's a possibility you may succeed, and you have to want it badly enough to put sufficient effort into it.

 

[jasonkelly]

Any one else notice on the "Deliveries" thread that the VINs are all of a sudden "TBD"? Anyone else thinking that this may be a sly plan for a Q3 production surprise?
Disclosure - I am long TSLA and sell some mad puts on it too.