Near-future quarterly financial projections

[ReflexFunds]

Yes, this is what I was trying to say. When an operational milestone becomes probable they run a Monte Carlo simulation for that tranche using the stock price at that time to estimate how long it will take to reach the matching market cap milestone. They then spread the tranche's GAAP expense over that time period. Once set, they don't change that time period no matter what happens to the stock.

The 4th tranche which they started to expense in Q4 is worth ~225m and is spread over ~22 quarters at about 10m/quarter. The Monte Carlo must have estimated 50% chance (or whatever) of 250b market cap in the fall of 2023.

Let's say they deem the 5th operational milestone probable this quarter and higher stock price and much higher volatility drive Monte Carlo to spit out September 2020 as the expected date for 300b market cap. That means spreading the 210m expense over only 10 quarters. They'd take an extra 168m of expense in Q1 and an extra 21m in each of Q2 and Q3. Interestingly, the 21m expense would disappear after Q3 even though the expense for earlier tranches will keep hitting the P&L for many quarters to come.

While that's possible, I doubt they'd really plug in such a high IVM.
Also, I think tranche 4 might be closer to $190m and 5 $180m. Given how lower IVM and market cap were, I think the $100/150bn tranches are likely to be significantly more valuable than the rest.

I actually think Tesla might only assess the operational goals once per year. The documents says "periodically" which feels more like annually than quarterly to me.

 

[UCF3]

Am I wrong in thinking that 2020Q1 is going to see a significant decrease in deliveries compared to 2019Q4? The end of the federal tax credit, people postponing M3 purchases now that MY deliveries are slated to begin next month, and the chinese GF shut down are all drags on what is historically a weak quarter anyways for car sales across the board.

 

[dc_h]

Am I wrong in thinking that 2020Q1 is going to see a significant decrease in deliveries compared to 2019Q4? The end of the federal tax credit, people postponing M3 purchases now that MY deliveries are slated to begin next month, and the chinese GF shut down are all drags on what is historically a weak quarter anyways for car sales across the board.

The only reason for decline, I think, is refilling inventory and any line shifts for Model Y. The Model Y production line would have been built, but the new line could take resources away from normal Model 3 production - but I don’t think that’s public knowledge. At this point, there is probably about a 2000 hit in reduced Shanghai production due to Corona virus. Plant due to open Monday, so that’s good news.

 

[JohnnyEnglish]

Am I wrong in thinking that 2020Q1 is going to see a significant decrease in deliveries compared to 2019Q4? The end of the federal tax credit, people postponing M3 purchases now that MY deliveries are slated to begin next month, and the chinese GF shut down are all drags on what is historically a weak quarter anyways for car sales across the board.

I made a stab at some Q1 production and deliveries figures in an earlier post.

Near-future quarterly financial projections

@EVNow has a different split but broadly similar figures.

Whilst there may be some people in the US that decide to wait for a Y that is unlikely to be the case outside the US - in the UK we cannot even place a reservation/pre-order for the Y. The long wait time for delivery seems to indicate that Tesla will be able to sell every car they produce in Q1 and can get to the customer before quarter end.

Clearly the GF3 estimates may need to be reduced given the current crisis, but that seems very difficult to call at present.

 

[davepsilon]

Over the course of this rise I’ve sold half my stocks in Tesla. I believe Q1 will be a poor quarter and lead to a great buying opportunity.

It does seem like there will be great uncertainty in both the Q1 results and the market reaction to them. The hints in the guidance given with the Q3 and Q4 earnings letter and calls are certainly not to expect a record breaking quarter.

• Q3 Letter "Vehicle Deliveries: Deliveries should increase sequentially and annually, with some expected fluctuations from seasonality." (emphasis added)
• Q4 Letter The Vehicle deliveries segment is renamed Volume and has no mention of sequential increase for automotive. "Volume: For full year 2020, vehicle deliveries should comfortably exceed 500,000 units. Due to ramp of Model 3 in Shanghai and Model Y in Fremont, production will likely outpace deliveries this year. Both solar and storage deployments should grow at least 50% in 2020."
  
• Q3 & Q4 Letter "We expect positive GAAP net income (and free cash flow) going forward, with possible temporary exceptions, particularly around the launch and ramp of new products" (emphasis added, and the Q4 letter notes Tesla is currently ramping Y and MIC Model 3)

But year-over-year numbers in Q1 will still look very nice which might be enough for the market on it's own. And while there will likely be a seasonality & coronavirus headwind there's also the potential for a Fiat European emission credit tailwind (we still don't know how the deal is structured though so could also be nothing).

Seems like it could go either way.

 

[lafrisbee]

On the fiat emission credits....
I ain't that capable of thinking about high finance thingees.
But I think it is kinda important to get on that S&P thingee, and If I ran a company I'd hold those Emission credits till when they'd be useful...like big time one-out closer in the ninth of a close game...
If he's got em and he needs em, he'll use em.

 

[ammulder]

On the fiat emission credits....
I ain't that capable of thinking about high finance thingees.
But I think it is kinda important to get on that S&P thingee, and If I ran a company I'd hold those Emission credits till when they'd be useful...like big time one-out closer in the ninth of a close game...
If he's got em and he needs em, he'll use em.

Well, nobody seems to know whether Tesla will even earn those on a quarterly basis or only on an annual basis. So even if they sell a lot of cars in Europe, they may not receive the cash for the credits during calendar 2020.

Though, in my completely uneducated view, it's possible that they'd "earn" the credits on a GAAP basis, even if they didn't receive the cash until later. Hmm.

 

[lafrisbee]

Well, nobody seems to know whether Tesla will even earn those on a quarterly basis or only on an annual basis. So even if they sell a lot of cars in Europe, they may not receive the cash for the credits during calendar 2020.

Though, in my completely uneducated view, it's possible that they'd "earn" the credits on a GAAP basis, even if they didn't receive the cash until later. Hmm.

Some of the posts I have read online make me believe that Tesla has the ability to hold "the check", and cash it when they want. Or perhaps "ask" for the money when they want it. If that is the option then I have a higher hope that the first quarter will be profitable.
So is that true...

 

[AudubonB]

MODERATOR:

One more reminder that this thread is for the EXCLUSIVE use of discussing earnings estimates. That means NO chittering about trading activity, advice and so forth. Such as are found will be deleted; any who try infusing a post like that with "some" earnings discussion will be considered guilty of trying to game the system and will be hit with an unspecified time-out.

Some posts above will have been deleted by the time you read this.

 

[EVNow]

What do you guys think about the delivery numbers & earnings this year, if CV-19 outbreak leads to large scale shutdown of society in EU and US ? It is starting to look like a "black swan" event to me.

 

[EinSV]

What do you guys think about the delivery numbers & earnings this year, if CV-19 outbreak leads to large scale shutdown of society in EU and US ? It is starting to look like a "black swan" event to me.

What’s the objective evidence for “black swan” Q1 deliveries?

Two months into the quarter I see:

• No material price reductions
• Low inventory worldwide
• No material Fremont production shutdowns except at beginning of January (please lmk if I missed any)
• Guidance that MY production would not impact M3 production
• Record deliveries in China in January for 1st month of quarter
• Strong European incentives and demand for EVs, especially in UK, France, Germany — three largest European car markets
  
• Model 3 new orders shifted to May delivery throughout Europe and Asia relatively early in quarter — “sold out” for Q1 outside NA
• Likely increasing China deliveries through end of Q1 as GF Shanghai ramps
• Small but larger than expected contribution from Model Y deliveries
• covid-19 data suggests reduced risk of su

Looks to me that a record delivery quarter is much more likely than a “black swan” quarter.

Most likely scenario IMO is a surprise to the upside on deliveries.

 

[EVNow]

What’s the objective evidence for “black swan” Q1 deliveries?

This year - IF CV-19 outbreak leads to large scale shutdown of society in EU and US.

CV19 is a potential black swan event.

See this post for why I think in the US - an outbreak is difficult to contain.

Coronavirus

 

[EinSV]

This year - IF CV-19 outbreak leads to large scale shutdown of society in EU and US.

CV19 is a potential black swan event.

See this post for why I think in the US - an outbreak is difficult to contain.

Coronavirus

I think the biggest challenge for Tesla will be pivoting quickly to manage the end of quarter rush when people may not want to gather in large crowds at delivery centers.

More home deliveries, or perhaps adjusting the delivery process at delivery centers — for example offering an option of meeting the customer at their new car in the lot instead of waiting in the Delivery Center — would help reduce the impact if that happens.

Expectations for Q1 seem so low compared to the list of positive signs listed above that even with some delivery disruptions and some last minute cancellations Q1 deliveries are more likely to surprise to the upside than not, even with school shutdowns, people working from home etc.

 

[EVNow]

Expectations for Q1 seem so low compared to the list of positive signs listed above that even with some delivery disruptions and some last minute cancellations Q1 deliveries are more likely to surprise to the upside than not, even with school shutdowns, people working from home etc.

I don't think Q1 will be affected that much. Though, as you note Tesla tends to backload deliveries - so if there is a sudden spike in cases leading to widespread panic shutdown in March, it would impact deliveries.

But the bigger problem could be Q2. Not just for 3, but also Y. We should no longer assume there would be no production or demand/delivery impact.

 

[Christine69420]

I think there are two main issues:

1) Can Tesla continue to make cars?
2) Will people still buy Teslas and take delivery?

If 1) is the issue I assume most other factories struggle too. Perhaps everything is postponed a quarter all over the globe.

If 2) is the issue Tesla can still continue to make cars. And people can get theirs when they are ready.

Tesla has been reporting on cars delivered - not cars made. But if we get a large lot filled with made but not delivered Teslas I would think other car makers are in a similar situation. And markets would recognize the cars made and ready for delivery as soon as people are ready. With Tesla being production constrained this issue would not be a lasting one.

If both 1) and 2) the World Economy is struggling for a while. And I would still prefer to have TSLA.

If neither 1) nor 2) I'll continue spending too much time in here.

 

[Quesder]

​

What’s the objective evidence for “black swan” Q1 deliveries?

Two months into the quarter I see:

• No material price reductions
• Low inventory worldwide
• No material Fremont production shutdowns except at beginning of January (please lmk if I missed any)
• Guidance that MY production would not impact M3 production
• Record deliveries in China in January for 1st month of quarter
• Strong European incentives and demand for EVs, especially in UK, France, Germany — three largest European car markets
  
• Model 3 new orders shifted to May delivery throughout Europe and Asia relatively early in quarter — “sold out” for Q1 outside NA
• Likely increasing China deliveries through end of Q1 as GF Shanghai ramps
• Small but larger than expected contribution from Model Y deliveries
• covid-19 data suggests reduced risk of su

Looks to me that a record delivery quarter is much more likely than a “black swan” quarter.

Most likely scenario IMO is a surprise to the upside on deliveries.

What is this “covid-19 data suggests reduced risk of su”? What is su?

 

[EinSV]

What is this “covid-19 data suggests reduced risk of su”? What is su?

Meant to delete that to avoid getting too deep in the covid-19 issues in this thread but basic idea is China covid-19 data is trending in a positive direction which suggests reduced risks of supply chain issues from China.

 

[PhaseWhite]

This year - IF CV-19 outbreak leads to large scale shutdown of society in EU and US.

CV19 is a potential black swan event.

See this post for why I think in the US - an outbreak is difficult to contain.

Coronavirus

I think the risk is honestly more to Q2 than Q1 at this point. I think Tesla's nimbleness will be an advantage to enabling them to come up with creative solutions but I worry about impacts to supply chain as well as people who were planning to order a car deciding to wait out of caution about the macro situation.

 

[EVNow]

...but I worry about impacts to supply chain as well as people who were planning to order a car deciding to wait out of caution about the macro situation.

Yes. Anyone thinking Model 3 sales won't be affected by CV are not facing reality.

 

[Singer3000]

Yes. Anyone thinking Model 3 sales won't be affected by CV are not facing reality.

I fully expect later today or tomorrow there will be a Fed induced bounce in markets. And most people on TMC will crow that there's nothing to worry about, "look how clever I am for buying loads of calls into the dip". And then before long the market will carry on correcting.

Meanwhile Tesla's management are behind the scenes wargaming how exactly they execute the backloaded Q1 delivery process, while keeping their staff and customers safe. Their experience in Shanghai will have informed a further plan on how to maintain supply chains and operations in Fremont as well as possible. But I imagine they understand better than anyone that the risk is no longer insignificant that at some point Fremont production might need to be curtailed or even suspended for a period. Pick your own percent probability for this but it's something which probably now deserves to be in the model because I'm quite sure it's in Kirkhorn's own cashflow model.

It is telling that in recent days Musk has been quiet/neutral on Twitter. I think he understands exponentials and the raise was nothing to do with the share price spike, it was because he saw what might unfold and grabbed the money while the market was stuck in complacent mode.

As we go into Q2, the awful economic data will begin hitting the wires. This will cause a much bigger stir then China PMIs did. Then Q1 reporting season. Corporates will have a strong incentive to "kitchen sink" their Q1 results, which will lead the market down again. As for TSLA specifically, I can't see why Tesla's approach would be any different. One imagines some nuance will be added to their 2020 forecasts.

In the backdrop of this wider data and worried conversations with their managers/colleagues, most people will be reconsidering whether now is the right time to buy that brand new car. I can't see why Tesla Model 3 would be better protected from this tendency than BMW, Audi or whoever else. This demand shock will come as a shock to a certain type of financially independent millionaire that crops on TMC, who can't conceive why anyone might defer a big purchase because of the economy. Model Y will be ok because of the huge demand backlog. Possibly MIC Model 3 for the same reason, hard to say. But outside of that the numbers could be far weaker than most assume.

Most people here like and respect Andrea James. They should read her Twitter feed from today if they still think this is a media induced panic.