Near-future quarterly financial projections

[Thekiwi]

Just listened to the Earnings Conference call (Q2-19)

Interesting, but predicable, that Elon is warning that Q1-20 will be a bad quarter. That's always a really bad quarter for the automobile industry, but most manufacturers hide it by stuffing inventory onto their dealers lots. Tesla can't do that, because of their direct sales methodology.

It'll be interesting to see how they handle that situation in 6 months time.

My recommendation is that January 2020 is a really good time to launch the SR+/AWD

just thinking about this some more - it could also be that Q1 will be when Fremont factory starts seeing some significant changes to accommodate Model Y production systems, which one would imagine might negatively impact model 3 and/or S/X production while the changes are made. (Just a guess on my part).

One thing management can do to combat any negative impact on the stock and Wall Street narrative is to provide full year forecast on the December quarter earnings call in late Jan/early Feb. I think many investors will give the company a pass if they provide 2020 full year production guidance (say ofof ~500k) with an understanding that it will be backloaded to 2nd half once Model Y is delivering in volume.

At the time of giving 2020 guidance, Tesla will be reporting the final 2019 result and will have gained credibility of their full year forecasting in 2019 (assuming they at least hit the low end 360,000 target - which I think they will)

 

[EVNow]

At the time of giving 2020 guidance, Tesla will be reporting the final 2019 result and will have gained credibility of their full year forecasting in 2019 (assuming they at least hit the low end 360,000 target - which I think they will)

Problem with Q1 '19 was that it came so suddenly. After talking about "profit if everything goes right" to $700M loss. Also the talk about Q1 killed Q4 as well, even though it was a good quarter. All this after saying in Q3 that they look forward to endless profitable quarters. That rank bad forecasting.

Now that EM has said in Q2 of '19 that Q1 '20 will not be good, it might not matter that much.

 

[Thekiwi]

Problem with Q1 '19 was that it came so suddenly. After talking about "profit if everything goes right" to $700M loss. Also the talk about Q1 killed Q4 as well, even though it was a good quarter. All this after saying in Q3 that they look forward to endless profitable quarters. That rank bad forecasting.

Now that EM has said in Q2 of '19 that Q1 '20 will not be good, it might not matter that much.

True, although IIRC there is some debate about what Q1 being tough meant when elon said it - eg he was possibly talking about sequential quarter on quarter growth (in which case Q1 would be pretty good if it is close to Q4 deliveries)

On another topic, is everyone keeping track of the US dollar exchange rate? I usually follow the DXY for a general US dollar strength gauge and it hit a new 52 week high last week. Tesla doesn’t do any currency hedging from what I can gather, so a strengthening dollar will hurt ASP on international sales all else being equal (with the Euro, Yuan and now the Canadian dollar and English Pound possibly being the most relevant individual currency crosses to watch)

 

[M3BlueGeorgia]

Problem with Q1 '19 was that it came so suddenly. After talking about "profit if everything goes right" to $700M loss. Also the talk about Q1 killed Q4 as well, even though it was a good quarter. All this after saying in Q3 that they look forward to endless profitable quarters. That rank bad forecasting.

Now that EM has said in Q2 of '19 that Q1 '20 will not be good, it might not matter that much.

Elon and his new Chairperson, need to do a better job of setting quarterly exceptions to be a little lower than they can legitimately forecast achieving.
Apple are masters at doing this.

 

[Todd Burch]

Elon and his new Chairperson, need to do a better job of setting quarterly exceptions to be a little lower than they can legitimately forecast achieving.
Apple are masters at doing this.

I’d say they’re awesome at quarterly exceptions .

It’s the expectations they need to work on .

 

[JohnnyEnglish]

In order to understand the conversations on this thread a bit better I have succumbed and put together some numbers to try and work out which scenarios could lead to break even in Q3. I have focused on the automotive side of things and assumed that the M3 production ramp continues so that total vehicle production and deliveries are just a shade over 100k (perhaps slightly optimistic?). However this still seems to leave automotive revenues at around $5.75B. To get to break even it looks as if these revenues need to reach around $6B. Not sure efficiency improvements would fill this gap or additional credits/FCA payments. Reading some of the comments from @luvb2b and @EVNow regarding recognition of deferred FSD revenues that could occur if V10 is released in Q3, that seems to be the only possibility to bridge this $250M gap.

I would really value comments and insights on things I may have missed. Thanks in advance.

 

[EVNow]

In order to understand the conversations on this thread a bit better I have succumbed and put together some numbers to try and work out which scenarios could lead to break even in Q3. I have focused on the automotive side of things and assumed that the M3 production ramp continues so that total vehicle production and deliveries are just a shade over 100k (perhaps slightly optimistic?). However this still seems to leave automotive revenues at around $5.75B. To get to break even it looks as if these revenues need to reach around $6B. Not sure efficiency improvements would fill this gap or additional credits/FCA payments. Reading some of the comments from @luvb2b and @EVNow regarding recognition of deferred FSD revenues that could occur if V10 is released in Q3, that seems to be the only possibility to bridge this $250M gap.

I would really value comments and insights on things I may have missed. Thanks in advance.

Break-even GAAP or non-GAAP ? I get non-GAAP breakeven with 98k delivery and 0.3% increase in margin (18.9% to 19.2%).

In terms of deferred revenue - EAP can be completely recognized if enh summon is delivered. But hard to know how much that is. Also EAP was discontinued sometime back, so Q2 sales won't have any EAP amount. FSD is more difficult to tell - because it includes upgrade to HW3 that they have not started.

 

[JohnnyEnglish]

Break-even GAAP or non-GAAP ? I get non-GAAP breakeven with 98k delivery and 0.3% increase in margin (18.9% to 19.2%).

In terms of deferred revenue - EAP can be completely recognized if enh summon is delivered. But hard to know how much that is. Also EAP was discontinued sometime back, so Q2 sales won't have any EAP amount. FSD is more difficult to tell - because it includes upgrade to HW3 that they have not started.

I am referring to the line shown as Net loss in the Q2 figures with a value of $389,262. Not sure if that is GAAP or non-GAAP.

 

[EVNow]

I am referring to the line shown as Net loss in the Q2 figures with a value of $389,262. Not sure if that is GAAP or non-GAAP.

I don't see that exact number, but that is close to GAAP loss of $407,975 (388,903+19,072).

Yes, to get to GAAP break-even in Q3 they would need some $200M extra revenue, that can come from either one time regulatory credits (like in Q1) or by recognizing EAP & part of FSD revenue one time.

I have to also wonder whether they will spread it over or even recognize most of the revenue in Q1, Q2 '20 - which are said to be tough quarters. They have 883M in current deferred revenue - so ~200M per quarter. But not all of it is EAP/FSD and they have been recognizing some deferred revenue every quarter. If I were to guess - I'd say extra $200M from FSD/EAP in Q3 is unlikely. But regulatory credit is totally unknown.

ps : It is not clear what Musk means when he says break-even. Is that gaap or non-gaap. May be I'll write to their investor relations to get clarification.

 

[JohnnyEnglish]

I don't see that exact number, but that is close to GAAP loss of $407,975 (388,903+19,072).

Yes, to get to GAAP break-even in Q3 they would need some $200M extra revenue, that can come from either one time regulatory credits (like in Q1) or by recognizing EAP & part of FSD revenue one time.

I have to also wonder whether they will spread it over or even recognize most of the revenue in Q1, Q2 '20 - which are said to be tough quarters. They have 883M in current deferred revenue - so ~200M per quarter. But not all of it is EAP/FSD and they have been recognizing some deferred revenue every quarter. If I were to guess - I'd say extra $200M from FSD/EAP in Q3 is unlikely. But regulatory credit is totally unknown.

ps : It is not clear what Musk means when he says break-even. Is that gaap or non-gaap. May be I'll write to their investor relations to get clarification.

Thanks. It seems my figures are not too far out of kilter

I think that you are right about them wanting to spread the revenue recognition over several quarters and that would fit with FSD being feature complete several quarters before it is operating at full accuracy (and hence fully delivered). Given the significant financial impact the release of FSD will have I am sure there is huge pressure to get it out this quarter. However if it is not out to early release in the next couple of weeks they will be cutting it fine.

Clarity on which break-even Musk was referring to would be very nice.

 

[EVNow]

I think that you are right about them wanting to spread the revenue recognition over several quarters and that would fit with FSD being feature complete several quarters before it is operating at full accuracy (and hence fully delivered). Given the significant financial impact the release of FSD will have I am sure there is huge pressure to get it out this quarter. However if it is not out to early release in the next couple of weeks they will be cutting it fine.

V10 will not have FSD feature complete (which itself is a misnomer for MVP). Just enh summon, recognition of traffic signs & lights. FSD FC would mean release of City NOA, which might come in Q4 (if they deliver on time).

No, I don't think Q3 is when we should expect a big one time FSD deferred revenue recognition - though EAP remains to be seen. They should be able to recognize EAP once Enh summon is released.

ps : Actually, it seems EAP also promised park-seek at some point. So, may be they can't recognize full EAP revenue too. But, may be 90% of the revenue they can. Also, we don't know how muuch of the revenue they have already recognized vs deferred since most of the EAP features have been available since V9. Ofcourse, none of this is a given - depends on their auditors and how strict the auditors are / how much would auditors even understand the subject.

Anyway, the below is from Jul 2017.

Crash course on Tesla's Cruise Control, EAP, and FSD

Future abilities of EAP ***NOT YET AVAILABLE, TIME FRAME UNKNOWN***: follow your GPS navigation route from on ramp to off ramp and merge from one highway to another. Smart summon your car from the garage to drive to your front door to pick you up. Smart park feature where you can pull in front of a restaurant, get out and go eat and the car will find its own spot and park itself then when you're done eating, you can summon your car to meet you in front of the restaurant again. (***caveat*** see limitations for FSD below)​

 

[mongo]

Clarity on which break-even Musk was referring to would be very nice.

Yeah, it would. Seems like break even references GAAP since FCF is way positive (unless they have huge purchases).

Q4 letter

In total, we are expecting to deliver 360,000 to 400,000 vehicles in 2019, representing a growth of approximately 45% to 65% compared to 2018. In this range, we are expecting to have positive GAAP net income and to generate positive free cash flow (operating cash flow less capex) in every quarter beyond Q1 2019. We believe these results will be substantially driven by our restructuring action and the ongoing financial discipline with which we are managing the business.

Q2 letter:

As a result of this growth and operational improvements, we generated $614 million of free cash flow (operating cash flow less capex) in Q2.

 

[EVNow]

Yeah, it would. Seems like break even references GAAP since FCF is way positive (unless they have huge purchases).

Q4 letter talked about gaap break-even and FCF positive from Q2. Ofcourse the first didn't happen.

Anyway, are you saying Musk is talking about gaap rather than non-gaap because of the wording of the Q4 letter ?

 

[mongo]

Q4 letter talked about gaap break-even and FCF positive from Q2. Ofcourse the first didn't happen.

Anyway, are you saying Musk is talking about gaap rather than non-gaap because of the wording of the Q4 letter ?

My totally unfounded opinion is that Elon would either be talking GAAP (what accountants/ market talk about) or Operating cash- CapEx which indicate the overall company profitability.

 

[EVNow]

My totally unfounded opinion is that Elon would either be talking GAAP (what accountants/ market talk about) or Operating cash- CapEx which indicate the overall company profitability.

But the market doesn't talk about gaap. All the analyst EPS figures you see in CNBC or Yahoo Finance is non-gaap.

Infact this is the main reason I'm not sure what he is talking about - apart from unlikely nature of gaap break-even in Q3 models.

But I guess you are saying the break-even refers to EPS rather than cash flow. That I agree.

 

[mongo]

But the market doesn't talk about gaap. All the analyst EPS figures you see in CNBC or Yahoo Finance is non-gaap.

Infact this is the main reason I'm not sure what he is talking about - apart from unlikely nature of gaap break-even in Q3 models.

But I guess you are saying the break-even refers to EPS rather than cash flow. That I agree.

Yeah, I didn't realize the focus was GAAP vs non-GAAP, so feel free to disregard. It seems like GAAP is the hardest to achieve, and so would be the one most worth commenting on as an achievement. But that is hardly a basis for determining true intent.

 

[Thekiwi]

I don't see that exact number, but that is close to GAAP loss of $407,975 (388,903+19,072).

Yes, to get to GAAP break-even in Q3 they would need some $200M extra revenue, that can come from either one time regulatory credits (like in Q1) or by recognizing EAP & part of FSD revenue one time.

I have to also wonder whether they will spread it over or even recognize most of the revenue in Q1, Q2 '20 - which are said to be tough quarters. They have 883M in current deferred revenue - so ~200M per quarter. But not all of it is EAP/FSD and they have been recognizing some deferred revenue every quarter. If I were to guess - I'd say extra $200M from FSD/EAP in Q3 is unlikely. But regulatory credit is totally unknown.

ps : It is not clear what Musk means when he says break-even. Is that gaap or non-gaap. May be I'll write to their investor relations to get clarification.

Worth mentioning that It isn’t entirely clear what Q1 & Q2 being “tough” means, given that Elon was possibly still discussing quarter on quarter growth with that comment.

 

[M3BlueGeorgia]

Worth mentioning that It isn’t entirely clear what Q1 & Q2 being “tough” means, given that Elon was possibly still discussing quarter on quarter growth with that comment.

I think he is really warning that Q1-20 will simply be tough for both revenue and loss.

Unlike legacy automobile manufacturers, Tesla can't stuff inventory into the dealer channel and take revenue on unsold vehicles. Since people in North America and Europe tend not to buy cars in January and February, sales will take a dip.

 

[tmoz]

Does anyone have an idea of what Model 3 production numbers look like in August?

 

[Fact Checking]

I think he is really warning that Q1-20 will simply be tough for both revenue and loss.

Unlike legacy automobile manufacturers, Tesla can't stuff inventory into the dealer channel and take revenue on unsold vehicles. Since people in North America and Europe tend not to buy cars in January and February, sales will take a dip.

This seasonality and the channel stuffing is usually hidden, but can be seen in U.S. used car sales data:

There's an about 10% price fluctuation of used cars, peaking in early summer and lowest in early January.

In fact it's pretty impressive how Tesla managed to make Q4 their seasonally strongest quarter.