TSLA Investor Discussions

[smorgasbord]

First - thanks so much! I've read it twice now and still haven't groked it all, but I'll give it another shot later. Funny how I can skim hundreds of lines of Java or Objective-C code and find/fix bugs, but reading less than 50 lines of accounting description makes my head spin. Second time through, I was proud of figuring out what "top line" meant!

...Tesla has $387 in cash at the end of Q1 and $113.3m in reservation deposits ... In their spring 2012 investor presentation Tesla showed $493m of total liquidity.

To be fair, the Spring presentation was quoting liquidity as of Dec 31, 2011, so they burned through $106million during Q1 of 2012. I think that's why you said Tesla could go another 4 quarters and still have liquidity - and that's under the false assumption that assembly line ramp up costs don't decrease, which they surely will.

In thinking about what you wrote, I think we may have an explanation for the lackluster stock price given all the good news. You said that Q2 won't be pretty, so perhaps when Q2 financials are announced the stock may present another buying opportunity - that is unless the news surrounding the cars having been produced doesn't overwhelm it.

Thanks again.

[NigelM]

First - thanks so much! I've read it twice now and still haven't groked it all, but I'll give it another shot later. Funny how I can skim hundreds of lines of Java or Objective-C code and find/fix bugs, but reading less than 50 lines of accounting description makes my head spin. Second time through, I was proud of figuring out what "top line" meant!

Hey, you could show me computer code and you might as well be asking me to read Greek! My takeaway is that JP is not lying but he is effectively encouraging misunderstandings when his resume suggests he should know better; he's not stupid so one can conclude that he's following some ulterior motive.

To be fair, the Spring presentation was quoting liquidity as of Dec 31, 2011, so they burned through $106million during Q1 of 2012. I think that's why you said Tesla could go another 4 quarters and still have liquidity - and that's under the false assumption that assembly line ramp up costs don't decrease, which they surely will.

Without going into detail you are correct in principle. The only caveat is that changes in liquidity are not purely related to "burning" through cash on one-time expenses. I would have expected to see liquidity hit by things like component purchases for products not on sale yet as well as for investments in tooling, apart from pure variable expenses.

In thinking about what you wrote, I think we may have an explanation for the lackluster stock price given all the good news. You said that Q2 won't be pretty, so perhaps when Q2 financials are announced the stock may present another buying opportunity - that is unless the news surrounding the cars having been produced doesn't overwhelm it.

Maybe. Share price is a reflection of how a company has performed, but also an indication of the perceived risk going forward. I suspect the top line won't look good, but if costs are down and Tesla can point to Model S deliveries starting problem-free then we could also see a spike. IMO this remains a volatile stock not for the faint-hearted. (P.S. I'm not a financial adviser! Buy or sell shares at your own risk.)

Thanks again.

You're welcome.

[daniel]

Thanks, Nigel!

[AndrewBissell]

Yes, answered and returned via this # 412.668.4050

When you call petersen's European phone #

Can you explain what you mean?

[Norbert]

Thanks, Nigel, for commenting on the various aspects of these questions! (Though you left me curious about the more complicated part...)

[vfx]

Many Thanks Nigel. So many smart people here to bask in.

R&D on the X with it's all wheel drive and the all new platform for the BlueGenlllstar may still be large.

[Norbert]

R&D on the X with it's all wheel drive and the all new platform for the BlueGenlllstar may still be large.

R&D included the cost to build up manufacturing. The Model X will be built on the same line, which is already prepared for Model X, so remaining costs will be much lower (in 2013). Gen3 however is a different story, but even further in the future.

[NigelM]

R&D costs also include component testing for everything from wear and tear to artificial aging, and potentially multiple cycles. How many components are there on a Model S? Powered seats...there's probably a hundred or more there alone. Crash tests, Beta's, you name it, many of those costs would have been in Q1 and many will carry over to Q2.

Agree with Norbert's comment above.

[mulder1231]

Q2 will probably not be pretty but JP ignores that costs will come down (see above on R&D and factory prep costs) and that as reservation payments become converted to revenue then liabilities will be reduced (remember back earlier in this post?), thereby improving the balance sheet.

NigelM, thanks so much for you insights.

One thing that might be worthwhile here is to take a look at the recent Morgan Stanley research note. Like many stock research firms do, they have developed a model of the Tesla balance sheet for the current fiscal year. Theirs show R&D actually going up in Q2 (they estimate $82M in Q2), before going down in Q3 ($45M estimate) and down more in Q4 ($35M estimate).

So when you say Q2 won't be pretty, in terms of the balance sheet that is probably true. Morgan Stanley's estimate is a net loss of $113M, which may or may not cause a little dip in the stock price.

Most analyst firms maintain a price target for the stock in the range of $42-45, so that is my expectation for the stock price by year end.

Morgan Stanley's Model S unit forecast for this year is very conservative (3000 versus Tesla's guidance of 5000). So stock price could go higher if Tesla produces 5000 cars as they said they will, and there are no quality issues.

[NigelM]

I agree. My personal view is that the Q2 balance sheet is largely irrelevant unless there's an earth shattering catastrophe. Leading indicators are far more important and that means three things in the short term:

1. Rate of Model S production
2. Incidence of problems (or not) with the Model S
3. Growth of the Mercedes powertrain supply deal

Don't forget that Q2 results probably won't be released until probably the second week in August; there's plenty of time for news to develop around the Model S deliveries before then.