2017 Investor Roundtable: TSLA Market Action

[Fallenone]

I will ignore the personal attack, and respond kindly.

The following is from the latest 10-Q:

View attachment 251383

As you can see, the biggest jump is in Construction in progress, which is "primarily comprised of tooling and equipment related to the manufacturing of [the] vehicles."

The latest 10-K also states depreciation on machinery (straight-line) doesn't start until it's ready for its intended use. So if Model 3 was built by hand in 3Q, why would depreciation hit the income statement? And tooling is units of production, so that doesn't hit at all.

In conclusion, depreciation from Model 3 tooling and equipment will be minimal in 3Q. Labor hours will hit gross margin, but the benefit from increased Model S/X deliveries will offset part of that.

I don't expect less than 20% overall gross margin in 3Q. Again, maybe I am wrong, but I don't see how that's possible given these results.

OK one last reply.

As you stated, biggest jump is in construction in progress and this is consisted of tooling AND equipment, with the latter being depreciated over 2-15 years, not by unit. You have to assume Tesla uncharacteristically invested a very high % of the "construction in progress" to tooling to justify your claim that the capex towards Model 3 production will not significantly manifest in COGS in Q3.

Also, do you think the 260 model 3 were built not using the stamping press machine and other heavy equipment at all? If not, their depreciation hits Q3 as COGS. If true, that would imply all 260 were hand built, which is even worse in terms of production ramp because this basically mean they haven't even tried to ramp up.

 

[Navin]

Good data
Putting the 'S' In Tesla - Bloomberg Gadfly

 

[ValueAnalyst]

OK one last reply.

As you stated, biggest jump is in construction in progress and this is consisted of tooling AND equipment, with the latter being depreciated over 2-15 years, not by unit. You have to assume Tesla uncharacteristically invested a very high % of the "construction in progress" to tooling to justify your claim that the capex towards Model 3 production will not significantly manifest in COGS in Q3.

Also, do you think the 260 model 3 were built not using the stamping press machine and other heavy equipment at all? If not, their depreciation hits Q3 as COGS. If true, that would imply all 260 were hand built, which is even worse in terms of production ramp because this basically mean they haven't even tried to ramp up.

Ok since you're back to ignoring me and that was your last reply, there's no point for me to respond I guess.. let's see how the 3Q margin comes in about a month.

 

[Waiting4M3]

I have been having an off TMC discussion about this with other people.

My feeling is that if I were in charge of the press release, ( Thank God I am not you are rightfully saying at this moment), I would have indicated that I was opening the design studio today for early reservation holders. Why?? It would have shown confidence that whatever ramping issues have been, or would be experienced, were/are quickly controlled.

Edited for my notoriously poor grammar/spelling/autochecking

Until the production ramp is done and thousands of customers are getting their cars, anything related to M3 is damned if you do, damned if you don't. There is not much Tesla can do besides ramp ramp ramp. I wouldn't over think and second guess too much. Just gotta be patient.

 

[AlMc]

Until the production ramp is done and thousands of customers are getting their cars, anything related to M3 is damned if you do, damned if you don't. There is not much Tesla can do besides ramp ramp ramp. I wouldn't over think and second guess too much. Just gotta be patient.

I agree it is now all about ramp. My comment was that adding more *color* by opening up the design studio would have shown confidence in the message that they have overcome or are quickly overcoming their station issues causing the ramp to be *slightly* slower than EM had tepidly predicted.

This may have mitigated some of the short term SP drop/pressure

 

[Krugerrand]

I bet the MS/MX Gross Margins are sequentially higher.

That's material and important

We will see on Q3 ER call

We know they were at least higher for the X because Tesla reduced the base price by 5k specifically because of production efficiencies. That came right from Tesla. So anyone who’s preaching gross margin issues with those vehicles is talking out their you know what. And we also know that 3 margins don’t get where they need to be until 5k/wk production. Also right from Tesla.

 

[Waiting4M3]

I will ignore the personal attack, and respond kindly.

The following is from the latest 10-Q:

View attachment 251383

The latest 10-K also states depreciation on machinery (straight-line) doesn't start until it's ready for its intended use. So if Model 3 was built by hand in 3Q, why would depreciation hit the income statement? And tooling is units of production, so that doesn't hit at all.

I have a different reading of Tesla's announcement:

Although the vast majority of manufacturing subsystems at both our California car plant and our Nevada Gigafactory are able to operate at high rate

This indicates to me that most of their machinery are "ready for its intended use".

 

[larmor]

What is the GM on telsa energy-stationary storage products? M3 is exciting cuz you can drive it around, and see it, but frankly from a business perspective, a bolted to the ground non moving battery is a better widget to sell. M3 is about the mission of tesla and the high priced MS/MX were positioned to enable this mission and eventual production and adoption of mass market EVs.

Short story: M3 is happening. Battery storage is intriguing and demands much more analysis.

 

[aznt1217]

How is this report bad? If anything it's the best scenario since the cars that make money are being cranked out in turn buying time for the Model 3 to make money faster.

 

[supratachophobia]

Oh look, bad model 3 production numbers.....

Current SP decrease = someone spilled the beans prior to today

 

[D-egg-O]

Until the production ramp is done and thousands of customers are getting their cars, anything related to M3 is damned if you do, damned if you don't. There is not much Tesla can do besides ramp ramp ramp. I wouldn't over think and second guess too much. Just gotta be patient.

It sure gives more validity to the "HELL/1134" joke now.

 

[Waiting4M3]

What is the GM on telsa energy-stationary storage products? M3 is exciting cuz you can drive it around, and see it, but frankly from a business perspective, a bolted to the ground non moving battery is a better widget to sell. M3 is about the mission of tesla and the high priced MS/MX were positioned to enable this mission and eventual production and adoption of mass market EVs.

Short story: M3 is happening. Battery storage is intriguing and demands much more analysis.

I wonder how much of an advertising effect the Powerwall will have on car sales. For example I bought my 1st iPod in the early 2000s, using it every day, then 2 years later I bought my 1st Apple laptop. Most people put the Powerwall in their garage. If they see the Tesla logo in their garage everyday, what car do you think they will buy next?

 

[Waiting4M3]

Oh look, bad model 3 production numbers.....

Current SP decrease = someone spilled the beans prior to today

Or someone had some inside connection at CA DMV and checked out how many M3 have been registered...

 

[Waiting4M3]

I agree it is now all about ramp. My comment was that adding more *color* by opening up the design studio would have shown confidence in the message that they have overcome or are quickly overcoming their station issues causing the ramp to be *slightly* slower than EM had tepidly predicted.

This may have mitigated some of the short term SP drop/pressure

Sure that may work for a few weeks, but what if the issues are more complicated and still not fixed by ER 4 weeks from now. Now you have amplified the pressure with thousands of people actually having configured and expecting a car very soon, media asking question at the ER call, and Tesla's reputation of meeting deadlines getting trashed further more.

 

[ValueAnalyst]

I have a different reading of Tesla's announcement:



This indicates to me that most of their machinery are "ready for its intended use".

That's a valid point.

So say $1.0B of machinery all ready for their intended uses as of September 1 - so for 30 days depreciation. Avg of 5y useful life, that's $16m of extra depreciation.

I don't know how GM sinks 4-5% on more than $3 billion of revenue with $16m of extra depreciation plus some labor hours....

To put this in perspective: 4Q15 GM was 18% when Model X was massively delayed, Model S was the only other product, and there was no Tesla Energy...

 

[AlMc]

Sure that may work for a few weeks, but what if the issues are more complicated and still not fixed by ER 4 weeks from now. Now you have amplified the pressure with thousands of people actually having configured and expecting a car very soon, media asking question at the ER call, and Tesla's reputation of meeting deadlines getting trashed further more.

You are absolutely correct, *IF* Tesla can not deliver the 3s in timely fashion. However, if I am confident that the bugs have been worked out on my automated assembly line I would say open the design studio to the first reservationists that want LR3 with PUP.

If I am not confident I can (or have) sorted out my station issues then certainly I am not adding ammo for more bearish sentiment.

 

[FredTMC]

I have been having an off TMC discussion about this with other people.

My feeling is that if I were in charge of the press release, ( Thank God I am not you are rightfully saying at this moment), I would have indicated that I was opening the design studio today for early reservation holders. Why?? It would have shown confidence that whatever ramping issues have been, or would be experienced, were/are quickly controlled.

Edited for my notoriously poor grammar/spelling/autochecking

Agree.

The sooner we have evidence of cars in higher rate production and opening of design studio, the better.

 

[Waiting4M3]

You are absolutely correct, *IF* Tesla can not deliver the 3s in timely fashion. However, if I am confident that the bugs have been worked out on my automated assembly line I would say open the design studio to the first reservationists that want LR3 with PUP.

If I am not confident I can (or have) sorted out my station issues then certainly I am not adding ammo for more bearish sentiment.

I agree with your line of thinking. But extending on that leads me to question "why hasn't Tesla shown more confidence in fixing these issues in the short term". So I'm trying to remind myself to not overthink it, and no to add to the feeding frenzy by critics/fans/media.

 

[FredTMC]

Now that Elon is back from Australia,

it's time to dust-off and unroll the sleeping bag and park his ass on the Model 3 general assembly line.

This was the car that was designed from the start to be "easy to manufacture"

Chop chop.

They've had years to work on the assembly stations for Model 3
Fix those stations, and giddy up

 

[dc_h]

What is the GM on telsa energy-stationary storage products? M3 is exciting cuz you can drive it around, and see it, but frankly from a business perspective, a bolted to the ground non moving battery is a better widget to sell. M3 is about the mission of tesla and the high priced MS/MX were positioned to enable this mission and eventual production and adoption of mass market EVs.

Short story: M3 is happening. Battery storage is intriguing and demands much more analysis.

I don't think TE margins will improve significantly until next year as Sparks starts producing in much larger volume. The ROI projections in Hawaii are not impressive, but future similar sites next year will start turning more positive. 10% GM for TE not likely in 2017. My guess. I think they need to incubate this market, but are getting close.