Q2 2013 Results - Expectations and Projection

[kevin99]

Yahoo finance says so. Ten analysts with an average $1.02 and a high estimate of $1.70. So you are assuming about 2x the high estimate. And even then that's a forward P/E of 40+.
I repeat. Great company. The stock price already assumes everything will go perfectly.

Yahoo finance, analyst report, all the public info out there are simply too slow to catch up with tesla. The model s is too fast a car for them to track!

The only relevant report so far is the db one last week. All others are clueless and they might as well spend a crash course here on the forum for one week.

 

[Julian Cox]

Who said the forward P/E is 130x? I expect 2014 earnings to be at a minimum $3/share and possibly more.

It is good to see someone point this out. Forward P/E is a speculative number that is too often confused for fact.

This is a really central source of confusion (mainly fallen for by the shorts). Absolutely agree that a spectacular upward revision of gross margin (very likely), declaration of a second quarter of profitability (very likely), confirmation of a beat on production and sales (guaranteed), and upward revision of guidance (guaranteed), will combine to move the forward P/E figure upwards. $3 - sure quite probable, staying unchanged, impossible.

A general revision of this figure following Q2 earnings offers one of the most exciting opportunities for a serious breakout because it will confound the shorts and move the institutional money. Another metric that will alter drastically is price to book. For many shorts in particular, P/B is still calculated on pre fundraiser numbers and is therefore simply wrong.

It is pretty certain that the ZEV situation will be very favorable vs expectations. It has been downplayed, where in fact announcing battery swap qualified Tesla for additional ZEV income.

There is the possibility of another DOE warrant write off owing to collapsing the loan entirely, there was circa $11M when reducing the term from 10 years to 5. I have estimated $17 Million owing to the difference in the TSLA price at the point of reducing the term from 5 years to 1 (paid). There may be some technical reason why there is no additional warrant write off in which case someone could perhaps point it out. At this time I am not aware of any reason why there should not be a repeat of this source of profit on the books. In any case, naturally there will not be a DOE loan installment to deduct.

The remaining point of contention seems to surround the application of Lease Accounting. I think this is a house of cards for the shorts. I am not qualified to unravel it from an accounting perspective other than to say Lease Accounting where applicable, stands to defer profits over a term without affect on accounting for cash flow. There is no affect on DCF modelling for example, and whatever difference is made will show up as a divergence between GAAP and Non GAAP profits, in other words the deferred profits will be visible and the cash flow accounts will be entirely unaffected (Tesla continues to receive 100% cash up-front ahead of each sale, and in fact a finance commission also with respect to Tesla Finance). Unlike the general mood surrounding this issue, I believe that Tesla has a lot of control over how to apply Lease Accounting. Specifically the company has stated that it has the ability to estimate the percentage of vehicle sales it applies to. This is exactly the same thing as saying that Tesla is not obliged to apply Lease Accounting to every sale made via Tesla Finance. In this statement lies the Lease Accounting bear trap.

With the worst case scenario with respect to Lease Accounting ruled out, my suspicion is that this estimate of applicability relates to the number of vehicles estimated to be repurchased by Tesla at 3 years of age. For a variety of reasons I have estimated this at 5% (i.e. a negligible value to which Lease Accounting will apply and therefore nothing to worry about). The reason for such a low number is that Tesla will by definition set the price floor of the second-user market making the open market by definition the place to get a better price than settling for the price-floor set by Tesla. Another is the fact that these vehicles are upgradeable with new battery technology, extending first user appeal and again setting the second user market higher than Tesla's price floor as well as introducing high-value parts of the configuration that are not subject to Tesla buy-back and can only realistically be re-sold in the open market.

Assuming Tesla acts in its own best interests (guaranteed) and applies Lease Accounting to a modest proportion of GAAP profits, this will also confound the shorts. It should also be noted that over-arching any affect of Lease Accounting I would be confident to state that Q2 earnings will contain the announcement of at least a Non GAAP profit. Considering the management style, it would be surprising to me if they concede a GAAP profit.

 

[Acmykguy]

Monthly Rotation Numberof Shares Value ofChange (MM) % of Shrs.Outstanding
Buyers 7/28/13 27,879,180 $1,592.19 91.2%
Sellers 7/28/13 49,930,926. $2,547.62 34.8%

 

[Citizen-T]

Yahoo finance says so. Ten analysts with an average $1.02 and a high estimate of $1.70. So you are assuming about 2x the high estimate. And even then that's a forward P/E of 40+.
I repeat. Great company. The stock price already assumes everything will go perfectly.

Perhaps you have not seen NFLX's P/E? Or CRM, or AMZN, or any number of other high growth stocks.

P/E is only a useful measure for companies where you can accurately predict future earnings. It is useless in these types of growth stories. Either you are right and the market is wrong (i.e. the valuation is too high) or the market is right and the analysts estimates are too low. Personally, I think the market has this one right and the analysts are struggling to keep up with their revisions higher.

 

[CapitalistOppressor]

Perhaps you have not seen NFLX's P/E? Or CRM, or AMZN, or any number of other high growth stocks.

P/E is only a useful measure for companies where you can accurately predict future earnings. It is useless in these types of growth stories. Either you are right and the market is wrong (i.e. the valuation is too high) or the market is right and the analysts estimates are too low. Personally, I think the market has this one right and the analysts are struggling to keep up with their revisions higher.

It's even more odd in Tesla's case. They are a growth company just in terms of exploiting the new global large luxury EV market that they are carving out, with the potential for years in sales growth as they expand into new markets and add the Model X. Those markets are significant all by themselves, and you could justify Tesla's current market cap based just on potential growth in the next few years. Porsche is a $19b company and if Tesla's U.S. results translate into equivalent global sales (and if the Model X also does well) they have the potential to match Porsche financial results within just a few years.

There is a fair argument about whether the current stock price is pricing perfection into this scenario (I think it is if that's all you look at). But the fact remains that Tesla has the clear capability to grow into its current stock price just by fully exploiting the burgeoning success of the S platform over the next couple of years.

But GenIII is a gigantic wildcard that is due out in just ~4 years. Unless Tesla makes some sort of monumental error in design or execution they are likely to sell hundreds of thousands of these things in the U.S. alone. So to my way of thinking the only way you get to the current stock price is by assuming something less than perfection with the rollout of the S platform and while simultaneously assuming a fairly high chance that the GenIII concept will basically fail to carve out significant market share in the mid-luxury market.

Those are both fair assumptions, but they are also the kind of assumptions that should be rapidly set aside if demand in Europe and Asia start to match that in the U.S. and as Tesla shows its hand by putting out a GenIII prototype and then backs it with a credible development program. At that point we should be able to get a good sense of market demand by tracking reservations, and that in turn should provide the market with strong signals to drive the stock price.

 

[ModelS8794]

There is a fair argument about whether the current stock price is pricing perfection into this scenario (I think it is if that's all you look at). But the fact remains that Tesla has the clear capability to grow into its current stock price just by fully exploiting the burgeoning success of the S platform over the next couple of years.

Could you frame this argument a bit for us? What level of S and/or X sales (US and/or globally) by, say, 2016, and at what gross margins and EBIT margin, do you conclude is priced in at $16Bln Enterprise Value today, if we make the assumption that Gen3 is still a completely free option?

TIA

edit: I ask because this is IMO a very provocative statement, and if demonstrably reasonable inputs really can get you there, it makes for a tremendously valuable non-consensus call on the stock today. I did this exercise about a month ago and concluded you really needed to start assuming Gen3 value in the stock at a price over $80 or so.

 

[Johan]

Now with only a week to go to the Q2 call I think it would be cool if we on the TMC board could come up with a kind of ”concesus” on what expectations are priced in. By this I mean that whatever price TSLA closes at Aug 7th reflects a lot of expectations when it comes to key metrics. If what is reported during the earnings call is spot on with all those metrics then in theory the stock would trade sideways for days after the call, while if Tesla dissappoint in those metrics price will fall and if they outperform on these metrics price will rise (with possible squeeze 2.0 scenario).*

My thinking is the key metrics are:
- Q2 results
- Guidance
- ”Other forward looking statements”

A lot could happen and new information could become availabe before Aug 7th so I will wait until that day to post my guesses on these different metrics.

One wildcard that we haven’t talked much about is what if they announce that Gen III development and deployment schedule has been accelerated? That would be a hughe positive influence on the stock price I believe.

Another wildcard is if they give us more substance to follow the swapping announcement (whis has been kind of left hanging in thin air). OK they have demoed the tech while playing cool music but then what??? If they say something definite about a timeline for real world deployment, pricing etc. I think that could be a catalyst as well. If they don’t talk about it I hope one of the analysts brings it up.

(*And we all know that the market always behaves rationally)

 

[JRP3]

I'm fairly certain that we won't hear anything about an accelerated G3 any time soon, for a number of reasons.

 

[FredTMC]

I'm fairly certain that we won't hear anything about an accelerated G3 any time soon, for a number of reasons.

I agree. Engineering / manufacturing main focus is getting model X built.

 

[Benz]

I'm fairly certain that we won't hear anything about an accelerated G3 any time soon, for a number of reasons.

I agree. That would be much too soon as of yet.

 

[NuclearPowered]

I'm fairly certain that we won't hear anything about an accelerated G3 any time soon, for a number of reasons.

I would expect they keep it under secrecy until very close to a mass production ready product. Build up the largest lead possible.

The more traditional auto maker's management thinks it can't be done (or isn't being done), the better.

 

[Julian Cox]

Now with only a week to go to the Q2 call I think it would be cool if we on the TMC board could come up with a kind of ”concesus” on what expectations are priced in. By this I mean that whatever price TSLA closes at Aug 7th reflects a lot of expectations when it comes to key metrics. If what is reported during the earnings call is spot on with all those metrics then in theory the stock would trade sideways for days after the call, while if Tesla dissappoint in those metrics price will fall and if they outperform on these metrics price will rise (with possible squeeze 2.0 scenario).*

Looking around I spotted a perfect example of absurdity from Zacks Research that I can paraphrase as: "Q2 expect a surprise". No really, I think that is very funny. Zacks has gone ultra-bull of late and behind this inherently illogical statement signifies an observation that analysts generally are beginning to concede a battle that in reality was lost before it was ever fought: Namely you cannot produce an genuinely predictive financial valuation model of TSLA on a single data point (Q1) in the absence of meaningful analogies - and there are none. To be clear, nothing in the established auto industry provides such an analogy because the reversed-CCC financial structure of Tesla is completely different to anything out there in the world of mass production. The only possible and never-cited exceptions are the sold-out reservation lists for supercars, and only then if the customers pay 100% cash up front before any part of the vehicle is even built.

The more general absurdity is the irrational determination by a significant minority to tie the price to short term fundamentals when it seems pretty clear that the main bulk of the float is owned on the story. In that context there is only one fundamental that matters: Musk is contracted to deliver a $43.2bn market cap by 2022. So long as the execution seems ahead of schedule then pretty much any price under around the $400 mark is a safe enough bet.

In the mean time the stock appears to have an inherent trajectory. It goes up a bit on good news and it goes down a bit on semi-credible F/UD, but generally in relation to the previous nominal support level and never so far in relation to a fundamentals-based valuation. It is possible to analyze and in many cases anticipate both inbound good news and F/UD. (F/UD - FUD being a deliberate assault on sentiment, UD being ambiguity of what something means - for example Battery Swap).

I will have a bash at what is not in the price at present:

A truly shocking revelation that this company is not burning through its cash*
A larger than anticipated ZEV, GHG income
A larger than anticipated Gross Margin
A possible warrant write of income (again)
A clarification of a minimal impact due to Lease Accounting
A confirmation of Non GAAP profit
A possible GAAP profit (that would be a real doozie for the shorts)
A possible first operating profit (that would be a game changer)
A dramatic guidance shock for China
A solid reassurance of Model S demand generally
A dramatic confirmation of Model X reservations
A possible acceleration of the Model X launch date
A resolute guidance to profits from Q3 onwards.

*(Keep in mind that $760M cash at bank from the last shareholder's meeting and prepare to laugh out loud Aug 7 assuming you are long)

What is in the price already:

I think an encouraging production number beat, a meaningful improvement in gross margings, reassurance of demand and an expectation of attractive Q3 and onward guidance is in the price.

 

[EV2BFREE]

"A larger than anticipated ZEV, GHG income"
What were the credits based on going forward? Say they projected 30,000 Leaf sales and Volt sales this year but those two cars end up selling only 20,000. Would that mean there is more demand for the credits because of a lack of credits earned. Would that then mean that the credits stay at a higher price for longer?
"A larger than anticipated Gross Margin"
At the Teslive event, Jerome talked about how they were selling the loaner cars quickly and could not hold them at the stores. With every loaner car sold, the margin would be a little bit higher because these are the most expensive vehicles and have the highest margin.
"A dramatic guidance shock for China"
There have been a few articles recently about Tesla Motors and the plans it has for China. I would expect that this topic will be brought up on the CC and it will give Musk a chance to confirm the reservation numbers from Shanghi.

A point that I would like to add is the production rate currently and the Full Year 2013 sales. The current guidance is for 21,000 vehicles from the May shareholder letter. 4900 delivered in Q1 and say about 5000 in Q2 would mean just under 10,000 for the first half of the year. Musk recently said that Tesla Motors was at a 25,000/year run rate for the Model S. That would mean about 12,500 cars produced in the second half if they didn't increase production at all for the rest of the year. If they did continue to increase production like they have been:
20,000/year at the end of 2012
25,000/year in mid 2013
30,000/year by the end of 2013?
If they are on this track and they expect to produce over 13,000 cars in the second half then they will raise Full Year guidance to a number above the current 21,000 guidance. That being said the numbers for Q3 and Q4 could be raised following the upcoming earnings report. Morgan Stanley a few months back raised their estimates for cars produced in 2013 to 18,000 and said that they didn't expect volume of 20,000 until 2014. Tesla Motors could see a new wave of upgrades with a raised guidance from Elon Musk.

 

[sleepyhead]

There is the possibility of another DOE warrant write off owing to collapsing the loan entirely, there was circa $11M when reducing the term from 10 years to 5. I have estimated $17 Million owing to the difference in the TSLA price at the point of reducing the term from 5 years to 1 (paid). There may be some technical reason why there is no additional warrant write off in which case someone could perhaps point it out. At this time I am not aware of any reason why there should not be a repeat of this source of profit on the books. In any case, naturally there will not be a DOE loan installment to deduct.

Julian - you have asked this question before and I responded but you must have missed my post. From the research I have done it looks like the warrants associated with the DOE loan were to become vested after 5 years (July 2017 or something like that). Since Tesla said it would pay off loan early within 5 years, it wrote down the warrants to $0 and recognized the entire gain. Therefore, unfortunately there will not be another warrant income item on the I/S.

 

[Julian Cox]

Julian - you have asked this question before and I responded but you must have missed my post. From the research I have done it looks like the warrants associated with the DOE loan were to become vested after 5 years (July 2017 or something like that). Since Tesla said it would pay off loan early within 5 years, it wrote down the warrants to $0 and recognized the entire gain. Therefore, unfortunately there will not be another warrant income item on the I/S.

Thanks for doing the research on that question, yes that makes sense (& apologies for missing your previous message on the subject).

These special items are of course secondary to sentiment compared with hard core earnings from selling cars and cash flow numbers that clarify the power of the business model.

Also worth noting that there is plenty enough without the "possible" caveat to wreak havoc with the shorts. Some of the remaining "possibles" would be a source of deep amusement.

 

[maekuz]

The thrill of anticipation: Tesla Earnings Preview For Wednesday | stocksaints.com

If Tesla delivers better than -0,05 Cents per share we all should have a blast.

I'm going in as follows: 0,03 Cents per share (GAAP; lease acounting rules applied); 5.100 cars delivered; 23% GM incl. ZEV

View attachment 130801_Tesla_Fundamentals.xlsx

 

[Acmykguy]

The thrill of anticipation: Tesla Earnings Preview For Wednesday | stocksaints.com

If Tesla delivers better than -0,05 Cents per share we all should have a blast.

I'm going in as follows: 0,03 Cents per share (GAAP; lease acounting rules applied); 5.100 cars delivered; 23% GM incl. ZEV

View attachment 27236

Here here! Nice sheet, IMHO it looks conservative but that is not a bad thing!

 

[Johan]

The thrill of anticipation: Tesla Earnings Preview For Wednesday | stocksaints.com

If Tesla delivers better than -0,05 Cents per share we all should have a blast.

I'm going in as follows: 0,03 Cents per share (GAAP; lease acounting rules applied); 5.100 cars delivered; 23% GM incl. ZEV

View attachment 27236

Very nice conservative estimate. You have applied 25% lease accounting which I think is too much probably, also the vehicle mix is very conservative... Looks good! Very hard to come up with a negative EPS.

 

[Nixx]

Very nice conservative estimate. You have applied 25% lease accounting which I think is too much probably, also the vehicle mix is very conservative... Looks good! Very hard to come up with a negative EPS.

Elon said in the last conference call that 50% of cars are financed and 50% of those are through Tesla. That means at least 25% of cars will be leased... and as time moves on the percentage will increase. 25% is definitely not too much.

Also, since this the first quarter with 60kw vehicles being made, that 30% is probably too low.

 

[maekuz]

Elon said in the last conference call that 50% of cars are financed and 50% of those are through Tesla. That means at least 25% of cars will be leased... and as time moves on the percentage will increase. 25% is definitely not too much.

Also, since this the first quarter with 60kw vehicles being made, that 30% is probably too low.

Elon estimated 35% 60kWh vehicles at the conference call for Q1. On the other hand loaners and P85+ sold exceptionally well in Q2. Therefore i picked 30%. But my numbers are a WAG anyway.