Q2 2013 Results - Expectations and Projection

[Sparky]

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.

My son toured the factory after hours on Friday. I asked him if it was pretty quiet and he said not at all; the place was going full tilt, robots moving as far as the eye could see. I took that as a good sign for Full Year 2013 sales.

 

[erha]

My son toured the factory after hours on Friday. I asked him if it was pretty quiet and he said not at all; the place was going full tilt, robots moving as far as the eye could see. I took that as a good sign for Full Year 2013 sales.

How great wouldn't it be if they announced that they were getting ready to double production to 40000 because they were getting their margins right and need to get the reservation list down

 

[CapitalistOppressor]

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.

Frankly, it's a relatively new thought for me and based more on back of the envelope type thinking than real analysis. Also, if you note what I said, I don't think Tesla actually is on pace to do it yet. Fundamentally it takes a quite bullish view on the potential for the S platform to get to Porsche like results, but I don't think its nearly as absurd as I would have thought a few months ago.

But the basic thought process is that Porsche is selling ~140k units/yr right now (which is the best in their history), on revenue of ~€14b, with an operating income of ~€2.44b and market cap of ~€20b.

Looking at what the S platform is doing now, the Model S is selling somewhere in the rough neighborhood of ~20k units/yr in the U.S. Based just on the proportion of the luxury market that the U.S. holds, that translates into roughly 60k units if you assume the Model S does equally well globally. Tack on a not unreasonable (in relation to Model S sales) 40k units in global Model X sales and you are talking ~100k units/yr on the S platform. If you simply assume that the ASP of the Model X is roughly the same as the Model S (I expect it to be higher), that gets us ~$9.4b in auto sales. With 25% margins exclusive of credits that is a gross profit of ~$2.35b. Even assuming that R&D and SG&A double from current levels, thats still like $1.5b in profit.

In addition, Tesla has a chance to make ~$214m/yr in GHG/CAFE credits (assuming a $36 SCoC and ~35,000 U.S. sales) and maybe as much as that again in ZEV credits if automakers continue to fail as badly as they have been at marketing cars that allow them to generate credits. The potential for Tesla to make a lot of money with credits really accelerates in the 2017+ years when the ZEV mandate switches to only allow plugins, and Tesla generates large multipliers on GHG/CAFE credits.

There are also likely to be additional GHG credit income derived from European sales, though the last time I checked the carbon markets there had crashed thanks to excessive allowances and depressed economic activity. But in the long term those markets could generate as much income per vehicle as the GHG/CAFE credits generate in the U.S, which is yet another source of significant profits.

Now, do I think Tesla is on pace to do this? No. They seem like they might be able to sustain 20k units of the Model S in the U.S., and they might get another 15k of the Model X. But I am unimpressed with their retail presence in the E.U. and reservation rates there have been pathetic compared to U.S. results. Right now I think they would be lucky to sell ~8k units/yr of the Model S in the E.U. And I have no clue how they'll do in Asia. The Model X is on even shakier ground overseas because SUV's (or large cars in general) just aren't as popular as in the U.S. I have a LOT of hope for China, but its clearly a huge question mark.

The point being, there is no reason to expect that the Model S will be the phenomenon overseas that it is in the U.S. It might be, and Tesla seems to be under the impression that it could be, but I see real barriers and I think that there is a lot for them to prove yet. If I had to guess, I'd say that ~60k/yr in 2016 is a good bet, but right now I expect well over half of those sales to be from the U.S.

But if they do get the kind of results overseas that I am starting to expect from the U.S. then a $15b market cap is quite justified based solely on the S platform.

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How great wouldn't it be if they announced that they were getting ready to double production to 40000 because they were getting their margins right and need to get the reservation list down

There is no more reservation list in the U.S., outside of a potentially large number of folks who have reserved but not finalized yet (for whatever reason). Additional production will do nothing to finalize those sales. Those folks will finalize or fall off of the list based on personal considerations like finances. The last significant chunk of the reservation list was whittled down in Q2 when Tesla offered leasing, and brought all of the remaining options into production.

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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.

It's not as robust as I'd like because folks self select to announce their option packages, but the data has consistently shown 60kWh sales to be in the ~30% or less range.

 

[Norse]

I am pretty sure that Tesla will sell more than 8k a year in Europe. I think they will sell 8k only in Belgium, The Netherlands, Denmark and Norway.

But I dont think they will sell that much in Asia.

 

[DonPedro]

But I dont think they will sell that much in Asia.

Why do you think that?

Asia is extremely hard to predict. Especially China is so big that you can be very far from being a mainstream phenomenon and still sell tens or hundreds of thousands. In Norway, we could have an ambition of a total market of 1-2 Model S per 1000 inhabitants, which would be 5-10k cars. In China, Tesla would only have to do 0.01 Model S per 1000 inhabitants to sell 13k cars. 0.03 per 1000 would sell 40k cars. We are talking the ultra-rich segment here, and how can any of us know anything about whether or not they will embrace the car?

I think the right call on Asia is what Elon already said: It is a wild card.

 

[Norse]

Well, I Guess I gotta agree With you there. I should have written that I don't think they will sell alot the first years compared to Europe. Im sure Europe can sell 20k+++ a year. Especially since we have better incentives. Over time I think it might be big in Asia aswell.
GENIII will be the most sold car in the world. NUMMI aint enough. I just hope it doesnt take more time than 3-4 years.

http://www.nasdaq.com/article/tesla-motors-may-foray-into-china-analyst-blog-cm263802

"However, TSLA would face challenges strengthening its base in the country,
mainly due to the lack of charging infrastructure. Moreover, its flagship car
Model S would be subject to import and luxury taxes in the country, which would
push up its already steep price."

I think the charging infrastructure will become very good in China over the coming years. But they have to get rid of that import and luxury tax aswell, and I think they will.

 

[erha]

Well, I Guess I gotta agree With you there. I should have written that I don't think they will sell alot the first years compared to Europe. Im sure Europe can sell 20k+++ a year. Especially since we have better incentives. Over time I think it might be big in Asia aswell.
GENIII will be the most sold car in the world. NUMMI aint enough. I just hope it doesnt take more time than 3-4 years.

http://www.nasdaq.com/article/tesla-motors-may-foray-into-china-analyst-blog-cm263802

"However, TSLA would face challenges strengthening its base in the country,
mainly due to the lack of charging infrastructure. Moreover, its flagship car
Model S would be subject to import and luxury taxes in the country, which would
push up its already steep price."

I think the charging infrastructure will become very good in China over the coming years. But they have to get rid of that import and luxury tax aswell, and I think they will.

How do you justify 20 000+++ in Europe? I might be wrong, but as far as I know it doesn't seem like the demand is really big except a few countries (mostly Norway, but also the Netherlands and Belgium and maybe Switzerland). However these countries generally have small populations. I can see tesla selling 10k early in these countries, but I can't see where the other 10k would be coming from. At least not for a couple of years

 

[Norse]

How do you justify 20 000+++ in Europe? I might be wrong, but as far as I know it doesn't seem like the demand is really big except a few countries (mostly Norway, but also the Netherlands and Belgium and maybe Switzerland). However these countries generally have small populations. I can see tesla selling 10k early in these countries, but I can't see where the other 10k would be coming from. At least not for a couple of years

There are incentives in other countries than Norway, the Netherelands etc. We are forgetting England, and London. There you have to pay 10£ or 15$ each day you drive in Central London. It's 0£ if you drive a Tesla. I actually "sold" a Tesla to guy shuttling me to the airport last time I was there. He had never heard of it before. Taxes and incentives will be everywhere soon, atleast in Europe. In Bergen, Norway, the tax just doubled.

When I say 20k, I obv hope that there will be more superchargers around. However, will Tesla be able to produce 20k Model S to Europe the coming years?

 

[bsd]

I'm currently visiting in the UK and am surprised at the number of SUVs and large cars on the roads (eg, Jaguar XF and XK).

 

[30seconds]

I don't see Asia as a downside (i.e., ~8k units) wildcard. i see them as a potential upside (20k+ units) wildcard. I've been to Beijing, Honk Kong and Tokyo multiple times over last two years and don't see much in terms of differences with regards to types of cars driven. I see as many A6, A8s, S Class and now Q5 and X5s as anywhere else (Ok, maybe minus SF bay area). Buick's number 1 market is China. General Motors biggest market: China - NBC News.com

These countries also face substantial global economic risk due to low domestic oil production. Plus outflow of capital to pay for said oil. And at least for Beijing, massive air quality issues, that the government is pushing hard to clean up.

A bit more: There is a road named Jinbao near the forbidden city in Beijing. Within a few blocks of each other are the Bentley, Lambo, Aston Martin, BMW, Mercedes, Ferrari/Maserati and Bugatti dealerships. Its pretty crazy and a good reminder that we are talking about a very capitalistic society.

 

[kevin99]

A bit more: There is a road named Jinbao near the forbidden city in Beijing. Within a few blocks of each other are the Bentley, Lambo, Aston Martin, BMW, Mercedes, Ferrari/Maserati and Bugatti dealerships. Its pretty crazy and a good reminder that we are talking about a very capitalistic society.

Interesting. Do we know the location of the future Tesla store in China? Would be cool to be among those name brands.

Google Map search yields no result. Consider it is scheduled to open in Sep(?) it ought to be known to someone.

 

[fjm9898]

Yes we do

Tesla is preparing an 8,000 sq. foot showroom in Beijing at the glass-pyramid-like Parkview Green Mall (Below), China's first LEED Platinum certified mixed-use building. The showroom will be about 3 times larger than the company's U.S. showrooms.

 

[Johan]

I believe Asia, and China in particular, is a super wildcard for Tesla as a market and that it will surprise (positively) very much.

I posted this comment in the TSLA investor thread on 10-12-2012:

There is one topic that hasn't resently been touched upon that I believe will be more important than many are thinking as of today: International (i.e. outside of North America) sales.

I believe that the markets in Europe as well as Asia are potentially much greater than many "US-centrics" understand.

Europe:
This is where I am and where I think I have to most insight. The total population of Europe is about twice that of the US (731 million). However, some of these are in poorer and less developed parts of Europa. Also, in Europe the number of cars per person is lower than in the US (America 812 vehicles/1000 people [only topped by Monaco] while in Europe: Germany 634/1000, Norway 578/1000, UK 525/100 for example). The more affluent and developed parts of Europe (Western-Northern) has about 421 million inhabitants (please, no offence to anyone, I included the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Poland, Spain, Sweden, Switzerland, UK) which is more than the US and Canada together at 347 million people. Factors that speak in favor of high EV adoptance: These parts of Europe are technologically mature and densley populated, the eletric grid is robust, especially some parts of Europe have a lot of renewable electricity available, electricity is relatively cheap especially in comparison to petrol or diesel (which is relatively a lot more expensive than in the US). Also traditional ICE cars are generally more expensive here than in North America. A German living next door to the BMW, Audi or Mercedes factory will pay more for his german car than an American would. A Swede pays more for his Volvo than an American, etc. Some governments in Europe are doing more than others to promote EVs, with tax breaks and other stimuli, but in the countries where there is little of this as of today I think a lot may change in the coming years. Europe in general is taking on the responsibility to reduce CO2 emissions more whole-heartedly than the US, IMO, and I would not be surprised if in a few years there will be measures on the EU level to promote EVs (it's all about reaching "critical mass").

Asia
Consider China (this is also true for some of the "Tiger Economies" of south-eastern Asia): Population 1.35 billion people. In 2011 there were 83 motor vehicles per 1000 people. This number has been growing rapidly and China has an explosive growth of middle- and upper class. Let's say that for now just 1% of the population are in a position to even consider buying a car, still that's 13.5 million people who are looking to buy their first ever car. Next year it might be 2%, the year after 3% etc. Anyway, many of these are people do not have the "burden" of much experience with ICE cars. They don't have the brand affiliation og traditions of ICE cars. They are more "native". I believe they will be much more likely to buy an EV. Think of it this way: ff you had never seen a car before, never driven one before, knew nothing about combustion engines or eletric cars and you were presented with one of each, isn't it clear you would pick the EV? The modern chinese don't have to go through the same gradual technological switch we're seeing in the west - there aren't thousands of car dealerships, millions of gas stations (especially in more rural areas) etc. They can just make a quantum leap straight in to the future. They are expanding their electric grid very rapidly anyway. It seems the governement there has got it right - they understand that Chinas future growth will require a lof of management of CO2 emissions and other environmental effects, and they get the fact that if "the average chinese" is going to own his own car in just one or two generations, these cannot be ICEs, since that would be such a huge additional burden with reagards to emmisions. Yes, for now, a lot of electricity is generated in a dirty fashion (coal etc.) but given some time I believe China will be doing a gradual switch to sustainable energy.

To sum up: Don't underestimate demand and future markets outside of North America. As of now Tesla has no real domestic competition, but really no real competition from European or Asian automakers either!

 

[vfx]

... I am unimpressed with their retail presence in the E.U. and reservation rates there have been pathetic compared to U.S. results. Right now I think they would be lucky to sell ~8k units/yr of the Model S in the E.U. And I have no clue how they'll do in Asia. The Model X is on even shakier ground overseas because SUV's (or large cars in general) just aren't as popular as in the U.S. I have a LOT of hope for China, but its clearly a huge question mark.....

As many have noticed George Blankenship has been dark for a while. When he made his surprise appearance at TESLIVE we found he has been in EU and China. I would imagine significant changes in marketing from both regions soon.

 

[sleepyhead]

I don't know much about Chinese culture (have never lived there before) and that is a big factor in the adoption of the Model S there.

But if you take culture out of the equation then the Model S will sell like hotcakes in China. The smog/air quality is so bad over there that people are walking with face masks on to minimize damage to their lungs. People are suffering from lung disease and other ailments because of the poor air quality. China might spend $180bn on an anti-pollution plan in the near future:

China to unveil £180 billion anti-pollution plan - Telegraph

If you are rich in China, this is going to be "THE" status car to have. You are showing that you have money, but more importantly that you care about the environment. Slap on some solar panels on your house and you will earn a lot of respect from neighbors, friends, and even strangers.

Once again, I am not sure about the culture part, but I would bet that Tesla will be wildly successful in China.

 

[kevin99]

Yes we do

Tesla is preparing an 8,000 sq. foot showroom in Beijing at the glass-pyramid-like Parkview Green Mall (Below), China's first LEED Platinum certified mixed-use building. The showroom will be about 3 times larger than the company's U.S. showrooms.

View attachment 27338

Wow that is one good looking show room, even from the outside.

Is it going to house other company or just tesla alone? Do you have a street address so I can correlate to where the luxury car dealers mentioned earlier?

 

[fjm9898]

That is a picture of the mall. The show room is in the Mall. look up the mall name for an address.

 

[JRP3]

The showroom will be about 3 times larger than the company's U.S. showrooms.

I'd say that's a vote of confidence in the market potential. Or they got a really good deal. Or both.

 

[Jonathan Hewitt]

I'd say that's a vote of confidence in the market potential. Or they got a really good deal. Or both.

Agreed. Whatever it is, probably a good thing.

 

[james_chen70]

My first post. Hopefully others will find it useful.

I am quite familiar with the Chinese culture. Just look at my last name.

Chinese people really do not have the luxury to be environmentally friendly. Spaces are limited, most live in small apartments. When monthly average salary is in the $100s, talking about protecting the environment is of little use. So no, Tesla will not be popular in China for environmental reasons.

However, Chinese people is mostly about face, or status. The Beijing Lamborghini showroom is absolutely beautiful, and large. There is money there. A lot of it. Good thing the Model S is not a cheap car. To the Chinese, Model S should be a status symbol. It is also a beautiful car to be seen in. When rich Chinese people buy stuff, they want to buy the best. So you can expect the best equipped Model S's to be popular with rich Chinese buyers. Can't quite put a number on how many Tesla will sell in China. But when I visited Beijing three years ago, BMWs and Mercedes were quite common. So I would imagine the Model S to do fairly well.

Besides, Chinese people actually like American cars. They have always thought GM and Fords are good cars (they are now, but they certainly were not a few years ago). The fact that Tesla is from the US, that adds a small favor towards Chinese buyers.

So overall, I would guess the Model S should do quite well in China.

Good luck all - especially on August 7.