Q2 2013 Results - Expectations and Projection

[sleepyhead]

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.

Thanks James for your contribution on Chinese culture. Since Chinese like buying the best products, then they will surely want to buy the best car ever made.

Sales of Mercedes S class in over the past 3 years in according to wikipedia:

US - 13,600, 12,300, 11,800 in 2010, 2011, 2012 respectively
Germany - 5,200, 4,700, 3,300
China - 25,000, 31,000, 33,000

So yeah, I am pretty sure that the model S is going to sell in the 10's of thousands per year in China alone.

 

[Alpha]

Very impressive work guys! I'm just a little worried that it's all too good to be true (and too many short term traders playing TSLA Q2 earnings, making the stock go too high.) But even if the stock tumbles after earnings, then it's just a good time to get in for Q3 and beyond!

 

[james_chen70]

Thanks Sleepyhead, for your numbers from Wikipedia.

Last weekend I was at the Tesla showroom in Menlo Park here in the Bay Area. Interested buyers drove BMWs and Mercedes there to check out the Model S. If this trend continues in China, then yes, I would share your view that the Model S will sell 10s of thousands a year there. And that will be sweet for TSLA longs.

Elon is no dummy. He will not be opening a showroom in Beijing that is three times larger than the biggest one in the US, if the market research data does not suggest there is a need for it. Tesla will have to find a way to ramp up production - 800 per week by the end of 2014? We shall see.

 

[blakegallagher]

Tesla will have to find a way to ramp up production - 800 per week by the end of 2014? We shall see.

I think they will exit 2014 with at least a 50k per year run rate, and a long waiting list. I think there will be a second s/x line before there is a generation 3 line.

 

[twinklejet]

Haha about Chinese... ditto for the large chinese diaspora in south east asia as well.. However, Elon might need to consider investing money into marketing cos it isn't so much about buying the best, it's about buying what EVERYONE ELSE thinks is the best... so that Chinese people can show off without showing off (no tesla time!)

They mostly drive around in mercs and bimmers cos everyone else will already know that mercs and bimmers are expensive.. if nobody knows what a Tesla is.. there's still a chance it might flop.. so yea.. or they could just open their store in between a lambo and ferrari store.. that might help..

 

[CapitalistOppressor]

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.

They need it. European reservation rates are pathetic, and large numbers of existing reservations will disappear like the US ones did. They will blow through the list by the end of the year while only devoting a fraction of production to it. The underlying sales rate is probably only ~5,000/yr right now.

Most, or all of their stores are old format (thus unproductive) and some are just a voicemail box. It's pathetic compared to the US situation when the Model S went into production last year. I doubt they get even 20% of US foot traffic. (maybe if I am mean enough GeorgeB will comment, lol)

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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).

Unfortunately the UK, post Top Gear, is probably the worst performing market in the world for Tesla.

 

[DonPedro]

They need it. European reservation rates are pathetic, and large numbers of existing reservations will disappear like the US ones did. They will blow through the list by the end of the year while only devoting a fraction of production to it. The underlying sales rate is probably only ~5,000/yr right now.

Most, or all of their stores are old format (thus unproductive) and some are just a voicemail box. It's pathetic compared to the US situation when the Model S went into production last year. I doubt they get even 20% of US foot traffic. (maybe if I am mean enough GeorgeB will comment, lol)

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Unfortunately the UK, post Top Gear, is probably the worst performing market in the world for Tesla.

I would add that many EU reservation holders seem frustrated by the quality and quantity of information. TBH I question how well-run the EU organization is.

 

[hershey101]

Anyone worried about the Chinese taking the car, reverse engineering it and building knock-off Model S's or selling the information to other big car manufacturers (like BMW) once the car starts selling in the Asia markets?

 

[Johan]

Anyone worried about the Chinese taking the car, reverse engineering it and building knock-off Model S's or selling the information to other big car manufacturers (like BMW) once the car starts selling in the Asia markets?

They're doing it already. So are the Germans, Japanese, Korans and Americans!

 

[Laumb]

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.

In Norway the luxury chair "Stressless" is sold In different price-classes. Last i read was One model of the chair, retailing for NOK 15'000,- were being sold om China for NOK 50'000,-.

The reason being they had to bump the price to get buyers - it wasn't expensive enough to be as luxurious as the rich chinese wanted it to be to buy it.

Source is Norwegian, but you could use a translator: Her koster Stressless en årslønn - Børs og finans - E24


My guess is Tesla will sell a massively higher amount of Model S In China if the introduce a top of the line Performance plus luxury long version with emblems clearly noting its a above $200k version.

 

[CapitalistOppressor]

I would add that many EU reservation holders seem frustrated by the quality and quantity of information. TBH I question how well-run the EU organization is.

Lol.. Tesla had/has the same issues in the US. That's just the nature of the beast I think, once you consider the rate that it is scaling up, and the continued lack, or late arrival, of resources needed to get ahead of these issues.

That is almost certainly the issue as well when it comes to my criticism of their EU sales effort. It may be that 5000 sales per year is all they feel they can handle at this point now that the US I'd unexpectedly saturating their production capacity.

 

[DaveT]

Q2 earnings forecast

I'd like to share my thoughts/forecast on Q2 earnings in hope to stir some more discussion.

# cars delivered: I think the best estimate here is for 5000-5200 cars delivered. I'm going to go with 5100-5200 cars delivered for Q2. Cars produced will likely be 5400-5500 cars. (Note: in Q1 they delivered 4900 cars)

Revenue: In Q1 they had total revenue of $562 million (including 68m from ZEV credits). I think ZEV credits will be slightly lower this quarter but this will be offset by the increasing gross margin and the 200 or so more cars delivered this car compared to Q2. I'm expecting $550-580m in revenue.

Earnings: In Q1 we saw non-GAAP earnings at $15m (eps $0.13). I don't see a huge change in this in Q2 since I'm expecting revenue to be similar to Q1. Expenses might be higher since they've been ramping up hiring at the factory, stores and service centers though. I'd expect a non-GAAP profit of $5-30m (eps $0.04-0.25). In terms of GAAP, it will depend on how they factor in lease accounting and how many people took advantage of the buy-back-guarantee/loan.

Gross Margin: In Q1 gross margin was 5% (excluding ZEV credits which was 12% of revenue), but that was the average so they ended the quarter significantly higher. I'd saying in the 7-10% range. In Q2, I'd expect GM to be in the 10-20% range. But to narrow it down, I'd expect it to be at 14-15%... since I imagine they ended Q1 at 10% and perhaps ended Q2 at 18% minimum and maybe ended the quarter at 20%.

Guidance: Previous guidance has been at 21,000 cars for 2013. I don't believe Tesla has given much guidance on other figures like revenue, profit, etc. At the end of Q2, I'd expect them to have delivered about 10,000 cars (4900 from Q1 and 5100 from Q2). In order for them to meet their 21,000 guidance they would have to deliver 5,500 in Q3 and 5500 in Q4 (roughly). 21,000 seems like a lowball estimate from Tesla. The question is whether they will raise this guidance on August 7th or not, and if they do by how much. Let's take a couple scenarios:

22,000 guidance for 2013 - 5500 cars in Q3 (458/week), 6500 cars in Q4 (541/week)
23,000 guidance for 2013 - 6000 cars in Q3 (500/week), 7000 cars in Q4 (583/week)
24,000 guidance for 2013 - 6500 cars in Q3 (541/week), 7500 cars in Q4 (625/week)
25,000 guidance for 2013 - 6500 cars in Q3 (541/week), 8500 cars in Q4 (708/week)
*I'm assuming 12 weeks in a quarter since 1st week of July was vacation and likely one week in Q4 will be off as well.
**Since they have started European deliveries we need to account a significant # cars on the boat in transit, so they might have more inventory at hand leading to less realized sales compared to production

My guess is that Tesla will raise guidance to 22,000 for 2013 (maybe 23,000). The reason being is that even though I think they could possibly achieve 24,000 cars delivered in 2013 (I don't think they can deliver 25,000), I don't think they want to set investor's expectations that high and be forced to deliver that. They'd rather set expectations that they can achieve with a very high level of confidence, and over deliver.

So here's a summary of my forecast (remember it's just a forecast):
- 5100-5200 cars delivered
- $550-580m revenue
- non-GAAP profit of $5-30m (eps $0.04-0.25)
- gross margin at 14-15% (excluding ZEV credits)
- raise 2013 guidance to 22,000 cars delivered

Now the question is if Tesla reports Q2 earnings like this, what will happen to the stock price? Will this be considered blowout earnings or not?

My take: I think these are very good earnings, but not blowout (considering the high expectations people have at the moment). In order for them to be blowout earnings, Tesla needs to surprise us in at least one of the areas... for example:
- more than 5200 cars delivered... like 5300 or so (which I personally see unlikely)
- more than $600m in revenue (again that would be surprising)
- more than a non-GAAP profit of $30m (0.25 eps)
- more than a 15% gross margin
- more than 22,000 cars delivered as guidance for 2013.

A blowout Q2 earnings could look like this:
- 5200 cars delivered
- $590m revenue*
- non-GAAP profit of $35m ($0.29 eps)
- 17% gross margin
- 2013 guidance raised to 23,000 cars delivered

*Update: I originally wrote $620m for blowout revenue but actually after thinking about it more I think $620m revenue might not be in the realm of realistic possibility. 5200 cars delivered (each with ASP of $100k is $520m in revenue, add $60m (very rough optimistic estimate) of ZEV credits and you've got $580m in revenue. It's hard to see it be much more than that unless substantially more cars than 5200 were delivered in Q2 (which I don't see any evidence for).

 

[sleepyhead]

DaveT - those are very good estimates. I think (maybe it's hope?) that you are conservative on almost everything. I think that Tesla might surprise us in at least two or three out of your five categories - Margin, guidance and possibly more cars delivered (since they had 100 carryover from Q1).

 

[kevin99]

Nice work Dave!
Do you think GAAP number is far less important? I thought people who are not terribly following TSLA would be only interested in GAAP? What would you model it?

 

[DaveT]

DaveT - those are very good estimates. I think (maybe it's hope?) that you are conservative on almost everything. I think that Tesla might surprise us in at least two or three out of your five categories - Margin, guidance and possibly more cars delivered (since they had 100 carryover from Q1).

Yep, I just edited my post (see last paragraph) to add what I think a blowout earnings might look like.

 

[sleepyhead]

Nice work Dave!
Do you think GAAP number is far less important? I thought people who are not terribly following TSLA would be only interested in GAAP? What would you model it?

I think that it is basically irrelevant. Imagine if Tesla sold 100% of it's car's as a lease. In Q2 the results would look something like this: Revenue $100m, $60m loss. The only thing that the lease number does have an impact on is risk to the company. If a substantial amount of car's were sold as a lease, then that could make the company more risky.

 

[kevin99]

I think that it is basically irrelevant. Imagine if Tesla sold 100% of it's car's as a lease. In Q2 the results would look something like this: Revenue $100m, $60m loss. The only thing that the lease number does have an impact on is risk to the company. If a substantial amount of car's were sold as a lease, then that could make the company more risky.

That is why I asked: for us, we understand the intricacy of the numbers. However there are a lot of investors or even analysts who do not look beyond the numbers. Think how many time you've seen TSLA being compared to ford and eps , p/e etc, how will those people factor in the lease implication?

I think the GAAP number is still important and Telsa will do within their boundary to make it a positive number, in a sense true profitability without a shadow of doubt!

If the GAAP is negative and TSLA price suffers from it while everything is excellent, what happened to sun power could happen to TSLA and some of us will cry out market is not fair.

 

[sleepyhead]

That is why I asked: for us, we understand the intricacy of the numbers. However there are a lot of investors or even analysts who do not look beyond the numbers. Think how many time you've seen TSLA being compared to ford and eps , p/e etc, how will those people factor in the lease implication?

I think the GAAP number is still important and Telsa will do within their boundary to make it a positive number, in a sense true profitability without a shadow of doubt!

If the GAAP is negative and TSLA price suffers from it while everything is excellent, what happened to sun power could happen to TSLA and some of us will cry out market is not fair.

You are right Kevin. It is irrelevant to me and it is irrelevant to Wall St. Analysts as well as Buy Side Clients. Unfortunately, Seeking Alpha, Motley Fool, Reuters, as well as other research reports and articles geared towards the retail investor use GAAP numbers.

This is basically what is happening: Institutional investors invest on non-GAAP numbers and retail investors invest on GAAP numbers; that's why small guys always miss out on good investments.

 

[austinEV]

22,000 guidance for 2013 - 5500 cars in Q3 (458/week), 6500 cars in Q4 (541/week)
23,000 guidance for 2013 - 6000 cars in Q3 (500/week), 7000 cars in Q4 (583/week)
24,000 guidance for 2013 - 6500 cars in Q3 (541/week), 7500 cars in Q4 (625/week)
25,000 guidance for 2013 - 6500 cars in Q3 (541/week), 8500 cars in Q4 (708/week)

A blowout Q2 earnings could look like this:
- 5200 cars delivered
- $590m revenue*
- non-GAAP profit of $35m ($0.29 eps)
- 17% gross margin
- 2013 guidance raised to 23,000 cars delivered

First of all, awesome post. Haven't we really established that the run rate is 550/wk now? 23,000 seems like its in the bag. I get your logic of them not wanting to over commit, so they may actually not raise guidance.

 

[Jonathan Hewitt]

Dave, good analysis! Thanks for putting those numbers down. Yes, the main question is what everyone will think of them. Back when the stock was in the 120s I was willing to go all in as your fair numbers would almost guarantee the stock going up. Now that it's $138...and potentially higher these next couple days...luckily options let you be as risky or cautious as you want! I'm still thinking of going all in with my cash but put a majority of it in LEAPS instead of short/medium term options and only a couple lotto tickets just in case. If the stock crashes on the "sell the news" effect there's always margin to take advantage of dips. I'd be disappointed if I wasn't all in and it goes up. I do have a few way OTM puts as "worst case scenario I don't want to get bankrupted" protection. I'm still thinking about my plan as I'm still cautious after my small experiment with short term options on SPWR's recent earnings report.

I think exceeding expected gross margin and positive news regarding demand are what the skeptics need to hear the most to cause an increase in share price from here. Elon has already stated that TSLA is production limited but I don't think the skeptics get it yet. I'm not sure what Elon can do/say to prove it except continue to pump out cars each quarter? Some exciting crazy random announcement would be helpful, too

If I had to pick a post earnings share price today I think the DB target of $160 sounds pretty fair