im not sure what you are asking and im fairly versed on the subject
Are you stating that depreciation is capped to inventory? If so I agree
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Near-future quarterly financial projections
- Thread starter luvb2b
- Start date
im not sure what you are asking and im fairly versed on the subject
Are you stating that depreciation is capped to inventory? If so I agree
That is not good news. In general I feel shorts here get too rough a ride. For those that remember GTAT, anyone who disagreed on that board (which was started from some prolific posters in this very thread) , got "we already discussed that" or banned. Then boom.
It’s unfortunate he got banned. something must ve happened in private coversation because his recent public record is fine. Mods won’t discuss why so no point in dwelling. Except that I do think mod team should try to diversify a little bit more.
i believe in your example there the cost at which inventory is held is estimated.
the time-based depreciation must all be taken in that period of time. by putting the depreciation cost in inventory (which is an asset) it won't actually hit the income statement.
Depreciation in COGS and EBITDA
i can go to my accounting expert if i must to ask, but i bet @brian45011 or @neroden already know the answer.
@brian45011 and @neroden: the question is, depreciation related directly to production at tesla is taken by both units-of-production and straight line (time-based) methods.
for the straight line portion of the depreciation, i believe that goes directly to cogs for that period (which affects gross margin of delivered product revenue).
what happens to inventory cars that are built that period? specifically, how is straight-line depreciation directly related to production going to impact the carrying value of the inventory? you could snake up the thread thru the general's posts to me and back.
as far as an update: yes i will have one. have been out for the 4th. of course i have to take numbers down from where i last was, tesla made me look foolish again for raising estimates.
the time-based depreciation must all be taken in that period of time. by putting the depreciation cost in inventory (which is an asset) it won't actually hit the income statement.
Depreciation in COGS and EBITDA
i can go to my accounting expert if i must to ask, but i bet @brian45011 or @neroden already know the answer.
@brian45011 and @neroden: the question is, depreciation related directly to production at tesla is taken by both units-of-production and straight line (time-based) methods.
for the straight line portion of the depreciation, i believe that goes directly to cogs for that period (which affects gross margin of delivered product revenue).
what happens to inventory cars that are built that period? specifically, how is straight-line depreciation directly related to production going to impact the carrying value of the inventory? you could snake up the thread thru the general's posts to me and back.
as far as an update: yes i will have one. have been out for the 4th. of course i have to take numbers down from where i last was, tesla made me look foolish again for raising estimates.
Hi.
This is a nice thread and i just came across it. I'm sure this has already been asked, but can someone point me to the broader reasoning behind the falling SG&A numbers, when they are supposed to deliver ~90k cars in Q4 instead of ~30k in Q1? And are you assuming lower R&D because they will cut it to achieve their profitability targets? Or is this more like, they won't need more R&D in the forseeable future, because of ... what? Thank you.
Edit: Never mind. That was discussed on the first few pages already. The arguments seem to boil down to cutting out contractors, efficiency gains and having expanded SG&A up to and before Q1 to be prepared for a much higher number of deliveries.
This is a nice thread and i just came across it. I'm sure this has already been asked, but can someone point me to the broader reasoning behind the falling SG&A numbers, when they are supposed to deliver ~90k cars in Q4 instead of ~30k in Q1? And are you assuming lower R&D because they will cut it to achieve their profitability targets? Or is this more like, they won't need more R&D in the forseeable future, because of ... what? Thank you.
Edit: Never mind. That was discussed on the first few pages already. The arguments seem to boil down to cutting out contractors, efficiency gains and having expanded SG&A up to and before Q1 to be prepared for a much higher number of deliveries.
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IMO, depreciation on a asset used in producing units that is depreciated on a time basis (could be either straight-line or accelerated) is allocated ratably to the units produced during the period regardless if any particular unit is sold or placed in finished goods inventory.
FYI:
"Property, plant and equipment...Depreciation is generally computed using the straight-line method over the estimated useful lives of the respective assets, as follows:
Machinery, equipment, vehicles and office furniture 2 to 12 years
Building and building improvements 15 to 30 years
Computer equipment and software 3 to 10 years
Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets. As of December 31, 2017, the estimated productive life for Model S and X tooling was 250,000 vehicles based on our current estimates of production. As of December 31, 2017, the estimated productive life for Model 3 tooling was 1,000,000 vehicles based on our current estimates of production.
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases.
Upon the retirement or sale of our property, plant and equipment, the cost and associated accumulated depreciation are removed from the consolidated balance sheet, and the resulting gain or loss is reflected on the consolidated statement of operations.
Given all the anecdotes about replacing robots with humans there may be some write-offs hitting the Income Statement in 2Q18.Machinery, equipment, vehicles and office furniture 2 to 12 years
Building and building improvements 15 to 30 years
Computer equipment and software 3 to 10 years
Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets. As of December 31, 2017, the estimated productive life for Model S and X tooling was 250,000 vehicles based on our current estimates of production. As of December 31, 2017, the estimated productive life for Model 3 tooling was 1,000,000 vehicles based on our current estimates of production.
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases.
Upon the retirement or sale of our property, plant and equipment, the cost and associated accumulated depreciation are removed from the consolidated balance sheet, and the resulting gain or loss is reflected on the consolidated statement of operations.
Also, I'm unclear on how much tooling, if any, is common to S & X, but the combined production of those models is well over 250k.
Service infrastructure is still underdeveloped in Europe with first Model 3 deliveries planned for early next year. Elon publicly admitting it on twitter means resources will be put in place to solve the situation. I am adding an additional 5 (Q3) and 10% (Q4) to service&other costs. This brings Q3 essentially to 0 and reduces Q4 profit by 20%.
That being said, I am not sure Tesla has taken the fundamental steps necessary to get the source of the problem under control, which is too much variation in their manufacturing. Both in terms of quality and number of different parts. Continuous integration is nice if you roll out a new version of a website and the old one disappears. Not so nice if a new version of a certain part means that you not only need to keep the original on backorder (which the supplier is possibly reluctant to continue to deliver since no volume) AND have to school your technicians in potential interactions between parts (witness the many stories of parts ordered not received, wrong parts ordered, parts ordered but can't be used, etc...)
That being said, I am not sure Tesla has taken the fundamental steps necessary to get the source of the problem under control, which is too much variation in their manufacturing. Both in terms of quality and number of different parts. Continuous integration is nice if you roll out a new version of a website and the old one disappears. Not so nice if a new version of a certain part means that you not only need to keep the original on backorder (which the supplier is possibly reluctant to continue to deliver since no volume) AND have to school your technicians in potential interactions between parts (witness the many stories of parts ordered not received, wrong parts ordered, parts ordered but can't be used, etc...)
I don't think that's the real source of the problem. There are similar parts issues on most vehicles. The fundamental problem is that Tesla's internal communications are poor -- and a large part of this may be weak database management. The technician should put in the VIN number, and know immediately which parts were originally shipped with that car, which parts they are supposed to be replaced with during repairs, etc. The system should know inventory across the whole world. When I've talked to the techs, it's clear there is nothing anywhere near this sophisticated going on.
@brian45011 could you help understand how/where that time-based depreciation hits the income statement and the balance sheet?
i thought if the time-based depreciation cost is allocated to inventory - which is carried as an asset - then some of the time-based depreciation would not be recognized on the income statement in the period of time when it is supposed to be realized.
i hope that made sense. example: if you had a machine that depreciated straight-line for 100m in a quarter, and produced 1m units of which only 500k were sold, then to realize that 100m of depreciation on the income statement you'd have to put the whole 100m amount into cogs. if you took only half and pushed half to inventory, then only 50m of the 100m straight-line depreciation would hit the income statement? (i don't know for sure just speculating).
this question is relevant to gross margin in the next quarter. with all those 11k units carried over into q3, if they are carrying q2 time-based depreciation with them in cogs they will be much lower margin units and drag gross margin in q3. if the q2 time-based depreciation was realized in q2 and those 11k will add to the number of units over which time-based depreciation is distributed in q3, then q3 margin will improve from the shift.
Luvb2b:
Caveat--I'm not an accountant. I took several accounting courses decades ago but do not claim any special understanding nor expertise in the practice of that profession.
I think that is precisely how it works. In the current quarter, COGs will include the 50m of the current quarter's depreciation (plus the depreciation from prior quarters assigned to Units that were placed in inventory but sold in the current quarter). Each quarter's COGS is a blend, which includes expenses (including depreciation allocations) for Units both produced and sold in that quarter, plus expenses from Units removed from inventory and sold it the quarter. Inventory is carried at the lower of cost or market value.
IMO, that is correct. Cars-in-transit sold in the subsequent quarter are a drag on GM% on the Income Statement in an environment where the unit cost of production is declining; however, they also juice Cash from Operations. I think that is partially why Elon can so confidently assert Cash Flow will be positive in Q3. The ending Cash balance for Q2 will be depressed because of the increase in Finished Goods inventory, but that phenomenon will be reversed in Q3, and the comparison from the ending balance in Q2 to the ending balance in Q3 will be enhanced.{assuming the number of cars-in-transit at quarter-end declines}. Looking at the growth or decline in the Cash balance over a longer period might provide a better perspective of Tesla's ability to be "self-sustainable."
Caveat--I'm not an accountant. I took several accounting courses decades ago but do not claim any special understanding nor expertise in the practice of that profession.
I think that is precisely how it works. In the current quarter, COGs will include the 50m of the current quarter's depreciation (plus the depreciation from prior quarters assigned to Units that were placed in inventory but sold in the current quarter). Each quarter's COGS is a blend, which includes expenses (including depreciation allocations) for Units both produced and sold in that quarter, plus expenses from Units removed from inventory and sold it the quarter. Inventory is carried at the lower of cost or market value.
IMO, that is correct. Cars-in-transit sold in the subsequent quarter are a drag on GM% on the Income Statement in an environment where the unit cost of production is declining; however, they also juice Cash from Operations. I think that is partially why Elon can so confidently assert Cash Flow will be positive in Q3. The ending Cash balance for Q2 will be depressed because of the increase in Finished Goods inventory, but that phenomenon will be reversed in Q3, and the comparison from the ending balance in Q2 to the ending balance in Q3 will be enhanced.{assuming the number of cars-in-transit at quarter-end declines}. Looking at the growth or decline in the Cash balance over a longer period might provide a better perspective of Tesla's ability to be "self-sustainable."
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With 3 production at a higher steady rate, I expect 11k or so to also be in transit going into q4
Waiting4M3
Active Member
Just as a reference, here is how Tesla's # of M3 in transit compare with the last week of production in each quarter:
Q4 2017, 860 in transit, last 7 days production 793
Q1 2018, 2040 in transit, last 7 days production 2020
Q2 2018, 11166 in transit, last 7 days production 5031
It seems that # of M3 in transit has been pretty closely tracking the production in the last 7 days in a quarter, and Q2 2018 does look like an outlier, lending support to the "stashing for 200k" theory. If that is the case, at the end of Q3, the # of M3 in transit may be more like 6000-7000 cars, similar or slightly above 1 week of production at the end of Sep.
ValueAnalyst
Closed
Your CapEx assumptions ($700m in 2Q, $800m in 3Q, and $900m 4Q) will likely prove too high. I expect $600m for all three quarters.
ok. i think i agree with your interpretation. i checked in with my accounting expert too and he gave me this link, which describes what you described.
https://www.aipb.org/pdf/DEPRECIA.pdf
so.... going with your interpretation, i think it means margins are going to improve more than i expected. i haven't yet posted an update because i wanted to make sure i understood how to evolve model 3 gross margin to this quarter.
let me present the following view for discussion purposes. the idea here is based on the depreciation insights provided above and some assumptions of the level of production related depreciation. i think we should see a 19% improvement in gross margin just from depreciation math and not including any other efficiency benefits.
presented for discussion purposes and very interested to hear comments related to the methodology, assumptions, and conclusion. note that the blended depreciation calculation is using units in-transit from the prior quarter and assigning them the depreciation per vehicle from the prior quarter's production. that means some vehicles sold get the current depreciation "per model 3" and some get the prior quarter's "per model 3" line. the gross margin impact is based on my asp assumptions, dollar wise you can see it's around 10.7k per vehicle improvement from 18q1 to 18q2.
depreciation assumptions based on this comment from abuja on last conference call (excerpted from seeking alpha)
[TD2]
luv q4-18e
[/TD2][TD2]
luv q3-18e
[/TD2][TD2]
luv q2-18e
[/TD2][TD2]
Mar-18
[/TD2][TD2]
Dec-17
[/TD2]
[TD2]
60,000
[/TD2][TD2]
50,000
[/TD2][TD2]
18,440
[/TD2][TD2]
8,182
[/TD2][TD2]
1,542
[/TD2]
[TD2]n/a[/TD2][TD2]n/a[/TD2][TD2]28,578[/TD2][TD2]9,766[/TD2][TD2]2,425[/TD2]
[TD2]n/a[/TD2][TD2]n/a[/TD2][TD2]11,166[/TD2][TD2]2,040[/TD2][TD2]860[/TD2]
[TD2]n/a[/TD2][TD2]n/a[/TD2][TD2]145,000[/TD2][TD2]130,000[/TD2][TD2]80,000[/TD2]
[TD2]
n/a
[/TD2][TD2]
n/a
[/TD2][TD2]
5.07
[/TD2][TD2]
13.31
[/TD2][TD2]
45.36
[/TD2]
[TD2]
n/a
[/TD2][TD2]
n/a
[/TD2][TD2]
5.99
[/TD2][TD2]
16.68
[/TD2][TD2]
45.36
[/TD2]
[TD2]
n/a
[/TD2][TD2]
n/a
[/TD2][TD2]
-10.7%
[/TD2][TD2]
-29.8%
[/TD2][TD2]
-85.6%
[/TD2]
https://www.aipb.org/pdf/DEPRECIA.pdf
so.... going with your interpretation, i think it means margins are going to improve more than i expected. i haven't yet posted an update because i wanted to make sure i understood how to evolve model 3 gross margin to this quarter.
let me present the following view for discussion purposes. the idea here is based on the depreciation insights provided above and some assumptions of the level of production related depreciation. i think we should see a 19% improvement in gross margin just from depreciation math and not including any other efficiency benefits.
presented for discussion purposes and very interested to hear comments related to the methodology, assumptions, and conclusion. note that the blended depreciation calculation is using units in-transit from the prior quarter and assigning them the depreciation per vehicle from the prior quarter's production. that means some vehicles sold get the current depreciation "per model 3" and some get the prior quarter's "per model 3" line. the gross margin impact is based on my asp assumptions, dollar wise you can see it's around 10.7k per vehicle improvement from 18q1 to 18q2.
depreciation assumptions based on this comment from abuja on last conference call (excerpted from seeking alpha)
... if we look at our depreciation costs on a per unit basis at steady run rate of 5,000 or so cars per week, we are in my mind well below most of our competitors – well below $2,000 per unit depreciation cost.
so 5,000 model 3's x 13 weeks x $2,000 = $130,000,000 in production related depreciation per quarter (or perhaps less).| … |
| 3 deliveries |
| 3 production |
| 3's in-transit |
| est model 3 production-related depreciation |
| per model 3 |
| blended production related depreciation per 3 |
| gross margin impact |
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This makes sense to me. Absolutely a good guy for Q2, but pretty little impact for Q3 I suppose
FirebirdAlpha
Member
How do you reconcile your 1.8B CapEx in 2018, vs Tesla's 2.35B CapEx forecast from their Q1 letter?
CapEx isn't something Tesla can just "turn off." The massive majority of that expenditure isn't optional. Heavy machinery is purchased 12-18 months in advance before it becomes operational and the expenditure recorded. Similar with construction jobs - you can't just bail on the construction company halfway through without incurring a significant penalty.
So how do you see Tesla reducing 2018 CapEx by 550M?
