Near-future quarterly financial projections

[Boomer19]

I was also surprised it was that low. As expected the increase in inventory weighed heavily on cash flows, but I expected that to the tune of -$750M, so the -$950M due to inventory was only -$200M more than I expected.

We'll have to wait for the 10-Q to find out exactly what other factors impacted the FCF so badly. A lot of the details are not reported in the ER report, but will be available in the 10-Q in the next week or two.

so i can safely assume what zach said that the inventory flush out during april will offset the negative free cash flow but then the lack of production in april will keep it flat? no payables to suppliers, no production vehicles bringing in revenue?

also, how do i reconcile ~1.7bb increase in cash and equivalents?

 

[The Accountant]

sorry fin statements 101 here dumb question

why FCF take such a drastic hit from q4 to -895m
of which net cash flow used in op activities -440mm plus the expected capex of 455m

but cash up 1.7bb to 8b

because of the jump of nearly 1bb in inventory?

pls help me understand. thanks.

I think you are asking why cash is up by 1.7B to 8B while FCF is negative.
Cash is up because of the 2.3B capital raise in Q1. The capital raise is not part of FCF

 

[FrankSG]

so i can safely assume what zach said that the inventory flush out during april will offset the negative free cash flow but then the lack of production in april will keep it flat? no payables to suppliers, no production vehicles bringing in revenue?

also, how do i reconcile ~1.7bb increase in cash and equivalents?

The increase in cash is due to the $2.3B cap raise.

There's a lot of uncertainty about these things in the near term, but honestly it doesn't really matter in the long term. Tesla's cash cushion is plenty, and the inventory will be sold at some point and contribute positively to FCF like it did in Q2'19 for example. Tesla's inventory is still only 20 days worth of sales, whereas the rest of the industry is probably approaching 100 days of sales due to crisis (normally 60-80 if I'm not mistaken).

 

[Boomer19]

I think you are asking why cash is up by 1.7B to 8B while FCF is negative.
Cash is up because of the 2.3B capital raise in Q1. The capital raise is not part of FCF

yes i knew they were unrelated for t th accounting perspective but forgot about the cash raise.

between you and frank at i get the picture as to why for both - thanks both of you

how the hell did i forget about the cap raise -sheesh

 

[EVNow]

Here is my comparison between my model & actual. I found a mistake in my forecast (Model Y revenue not accounted) - which I've corrected in the comparison below.

Biggest differences are
- 18.5% Margin instead of 17%. The drop from Q4 is less than feared.
- Reg credits is a whopping $200M more. Infact almost all of the difference in the bottomline is explained by this.
- Energy & Storage revenue much smaller than expected.
- ASP for Model 3 is estimated to be 1K less than assumed.

 

[Davidzhao365]

The increase in cash is due to the $2.3B cap raise.

There's a lot of uncertainty about these things in the near term, but honestly it doesn't really matter in the long term. Tesla's cash cushion is plenty, and the inventory will be sold at some point and contribute positively to FCF like it did in Q2'19 for example. Tesla's inventory is still only 20 days worth of sales, whereas the rest of the industry is probably approaching 100 days of sales due to crisis (normally 60-80 if I'm not mistaken).

I asked Tesla sales and delivery team yesterday and they told me all Model Y have been sold out. And I have to wait for the factory to reopen to get my Model Y.
This was not the case in the early Apr, when they called me and asked there were many cancellation and if I can take delivery then.

 

[EVNow]

All this talk about Regulatory Credits in AP (>10% by a single entity assumed FCA) means, Tesla is accruing credits as they sell cars. This gives a way to estimate credits for next quarter - even though it increases risk of default on AP by FCA and thus a medium/long term risk.

AP is $1,274M - so atleast $127M is owed by FCA.

Was there anything further they talked about in the call ? I missed the first half.

 

[Doggydogworld]

All this talk about Regulatory Credits in AP (>10% by a single entity assumed FCA) means, Tesla is accruing credits as they sell cars. This gives a way to estimate credits for next quarter - even though it increases risk of default on AP by FCA and thus a medium/long term risk.

AP is $1,274M - so atleast $127M is owed by FCA.

Was their anything further they talked about in the call ? I missed the first half.

SeekingAlpha has a transcript. You may need PPE

AP means they actually sold the credit but have not yet received the cash. If they were accruing revenue at the time the car was sold they'd include the amount in Other Current Assets.

 

[EVNow]

AP means they actually sold the credit but have not yet received the cash. If they were accruing revenue at the time the car was sold they'd include the amount in Other Current Assets.

I guess it depends on the deal they have with FCA. It could simply be that for every car they sell in AP they will automatically sell the credit to FCA and bill them once a quarter ? Yes, putting in AP means they have definitely transferred ownership.

 

[mblakele]

Hmm, what would Q2 look like with Nevada making storage nearly exclusively, Fremont mostly offline, and Shanghai online? Anyone able to model that?

Perhaps I should have posted this here, instead of in the morass of the chat thread. I'd guess this scenario would yield a smaller business, and that the margin on energy storage is lower than automotive margin. But I haven't tried to model it. Any thoughts?

 

[EVNow]

Perhaps I should have posted this here, instead of in the morass of the chat thread. I'd guess this scenario would yield a smaller business, and that the margin on energy storage is lower than automotive margin. But I haven't tried to model it. Any thoughts?

What will they do with energy storage ? Can they install them ?

Another point I was wondering about after reading the ER call transcript- they said not all GF3 parts are localized. Are they getting enough parts from outside China to make some 40k cars there ?

 

[MC3OZ]

What will they do with energy storage ? Can they install them ?

Another point I was wondering about after reading the ER call transcript- they said not all GF3 parts are localized. Are they getting enough parts from outside China to make some 40k cars there ?

There are reports GF1 is making Megapacks (see main thread)

As these a shipping container sized batteries designed for outdoor installation if should be possible to keep a safe separation between installers.

Perhaps some portion of the contract is even paid when they are delivered to site.

Q2 is particularly challenging, in terms of what can be delivered/installed and what part suppliers can make...

Tesla US factories can probably make parts for China...

IMO Tesla is good at working around problems and finding quick solutions, Q2 is the kind of quarter where that is a comparative advantage.
But having Fremont closed negates a lot of that advantage.

 

[Buckminster]

But having Fremont closed negates a lot of that advantage.

Freemont will open in next 2 weeks. Trust in Trump

 

[navguy12]

Freemont will open in next 2 weeks. Trust in Trump

If a case can be made that protocols being used in Shanghai are proving effective, why wouldn't the California authorities listen to that case and amend their current decisions?

 

[mblakele]

What will they do with energy storage ? Can they install them ?

Another point I was wondering about after reading the ER call transcript- they said not all GF3 parts are localized. Are they getting enough parts from outside China to make some 40k cars there ?

Those are good questions. I don't have answers, but I guess I'd try to model Q2 based on optimistic expectations for both questions. That is, Tesla Energy can install as many storage products as Nevada can produce, and Shanghai can get all necessary parts; then consider more pessimistic cases.

 

[EVNow]

There are reports GF1 is making Megapacks (see main thread)

We know there is a long waiting list for domestic storage. Is there one for commercial megapack as well ?

On regulatory credits, it sounds like Tesla billed FCA for all the cars it delivered in Europe. So, how much credit they can get in Q2 would depend on how much they can deliver n Europe - which depends on how much they can make. If Fremont restarting gets delayed by anything more than a week Tesla runs the risk not having enough time to produce, ship & deliver cars to Europe (assuming deliveries won't be blocked in Europe in June).

 

[MC3OZ]

We know there is a long waiting list for domestic storage. Is there one for commercial megapack as well ?

On regulatory credits, it sounds like Tesla billed FCA for all the cars it delivered in Europe. So, how much credit they can get in Q2 would depend on how much they can deliver n Europe - which depends on how much they can make. If Fremont restarting gets delayed by anything more than a week Tesla runs the risk not having enough time to produce, ship & deliver cars to Europe (assuming deliveries won't be blocked in Europe in June).

All indications are the demand for Megapack is high:-
Musk says Tesla "megapack" driving huge rise in battery storage deployments | RenewEconomy

I do agree on the logistics of getting all the energy storage batteries deployed, they have been cell constrained so it will be interesting to see what Tesla Energy can do with ample supplies, they still need to get installs done, with COVID-19 likely to impact that.

I'm hoping Fremont opens mid-May rather than June 1 or later, that is quite critical IMO, 6 weeks to install 2 weeks of extra energy storage production seems possible.

Mid-May perhaps gives some chance to ship 1-2 weeks of production to Europe via the East Coast. Otherwise I agree on regulatory credits..

So a lot depends on how the COVID-19 outbreak tracks in the US and Europe over the next 1-2 weeks.

On a related matter this Dave Lee video gives an idea of the targets for Q2 in terms of S&P 500 inclusion:-

IMO Tesla could post a considerable Q2 loss and still be a virtual certainty for S&P 500 inclusion after Q3 results provided Q3 2020 was similar to Q3 2019

Q2 2019 was a $409M loss, that is the target Tesla has to beat to have a chance of S&P inclusion after Q3.

 

[Doggydogworld]

If a case can be made that protocols being used in Shanghai are proving effective, why wouldn't the California authorities listen to that case and amend their current decisions?

There's no way to know if GF3's protocols are effective, since the region has almost zero infections.

 

[EVNow]

All indications are the demand for Megapack is high:-
Musk says Tesla "megapack" driving huge rise in battery storage deployments | RenewEconomy

They deployed a record 530MWh energy storage - but Energy revenue as a whole was down 33% over Q4.

Q3 is not going to be a "normal" quarter either. There won't be a normal quarter until Covid goes away and the economy recovers. So, the best bet to get to S&P 500 would be to make a small profit in Q2. If Fremont is shutdown for half the quarter, that makes it very difficult. Ofcourse if Q2 isn't too bad - and in Q3 if they can turn a profit, that would work too - but they would lose the $143M profit from Q3 '19, replaced with a loss in Q2 '20.

BTW, with response to traffic light/stop now released, they can recognize some FSD deferred revenue in Q2, but not the whole amount I had hoped, though.

 

[MC3OZ]

They deployed a record 530MWh energy storage - but Energy revenue as a whole was down 33% over Q4.

Q3 is not going to be a "normal" quarter either. There won't be a normal quarter until Covid goes away and the economy recovers. So, the best bet to get to S&P 500 would be to make a small profit in Q2. If Fremont is shutdown for half the quarter, that makes it very difficult. Ofcourse if Q2 isn't too bad - and in Q3 if they can turn a profit, that would work too - but they would lose the $143M profit from Q3 '19, replaced with a loss in Q2 '20.

BTW, with response to traffic light/stop now released, they can recognize some FSD deferred revenue in Q2, but not the whole amount I had hoped, though.

Hypothetically:-
Q4 2019 - $105M profit
Q1 2020 - $16M profit
Q2 2020 - $400M loss

Q3 2020 would need a profit > $279M to trigger S&P 500 inclusion...

That is the scenario I'm interested in, even more interested if Q2 2020 only posts a $200M loss as then only a $79M profit is needed in Q3.

How realistic this is I don't know, my hunch is it is the mostly likely early path to S&P 500 inclusion...

if Fremont operates for all of Q3 and Shangai is ramps to around 4K per week and there are no significant parts issues, gross margins are back at 25% with regulatory credits, that is production and margins back to normal.

I also think we will see more solar roofs installed Q2/Q3, the US weather will be better.

I assume you comment about Q3 not being normal relates to demand?