Short-Term TSLA Price Movements - 2016

[brian45011]

I don't think this is correct. These would be advance payment and would be recorded as "Deferred Revenue" on the balance sheet.

What is 'Deferred Revenue'
Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. The recipient of such prepayment records unearned revenue as a liability on a balance sheet, because it refers to revenue that has not yet been earned, but represents products or services that are owed to a customer.



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You might want to use the definition Tesla uses in its SEC filings:

"Customer deposits include cash payments from customers at the time they place an order for a vehicle and additional payments up to the point of delivery including the fair value of customer trade-in vehicles that are applicable toward a new vehicle purchase. Customer deposit amounts and timing vary depending on the vehicle model and country of delivery. Customer deposits are fully refundable up to the point the vehicle is placed into the production cycle. Customer deposits are included in current liabilities until refunded or until they are applied to a customer’s purchase balance at time of delivery."

Deferred Revenue relates to Re-sale/Residual value guarantees:

"We offer resale value guarantees or similar buy-back terms to all customers who purchase vehicles and who finance their vehicle through one of our specified commercial banking partners. Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a pre-determined resale value. Guarantee periods generally range from 36 to 39 months. Although we receive full payment for the vehicle sales price at the time of delivery, we are required to account for these transactions as operating leases. The amount of sale proceeds equal to the residual value guarantee is deferred until the guarantee expires or is exercised. The remaining sale proceeds are deferred and recognized on a straight line basis over the stated guarantee period....

In the fourth quarter of 2014, we also began offering residual value guarantees in connection with automobile sales to certain bank leasing partners. As we have guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralized borrowings as required under ASC 840 - Leases . Under this program, cash is received for the full price of the vehicle and is recorded within resale value guarantee for the long-term portion and deferred revenue for the current portion. We accrete the deferred revenue amount to automotive revenue on a straight line basis over the guarantee period and accrue interest expense based on our borrowing rate."

 

[Sparky]

Ive seen this with a few stocks over the years. A series of blunders or bad news, scares away the nervous nellies leaving the rusted on investors behind. The withdrawl of these investors reduces volatility as less people are jumping in and out, with less people jumping in and out day-traders start to lose interest as there is less volitality to trade on - so they move on too removing volatility further. You eventually get to a point that bad news doesnt seem to make the stock drop as much as it used to.

All purely anecdotal of course, and I have probably grossly overestimated the effect of retail investors on a stock like TSLA!

Having said all that, I don't think ER was a bad news story - Ive seen a lot of positive reporting - surprisingly positive.

I think with the impending SCTY move there's plenty of volatility built in to the next couple months. Otherwise, I agree that from the TE,TM side, things might stabilize a bit. I just listened to the CC and my takeaway was--
Not so good things:

"Deferred gratification" once again. I'm not hung up on delivery count and it seems like Elon's guidance was "approximately 50K" in Q3,Q4 whereas previously it was "over 50K" IIRC. No biggee either way to me but cramming TM and now TE products into the end-of-year pipeline seems like a movie we've seen before.
Possible "bathtub" effect of stalling at a $2k/week S&X rate through 3 quarters next year leaving them revenue lean by Q3; unless TE comes to the rescue.
I think Tesla is spinning a lot of plates and trying to make it look like it's no big deal when in fact they're sweating bullets.
To me, today's report, though not unexpected was "a loss feels like a win". The manufacturing curve is still steep.
Good things:

Though the manufacturing curve is steep, they're getting there. Still an impressive YOY delivery uptake.
Emphasis on Model 3 and then Autopilot, in that order. They have focus.
Emphasis on cash efficiency. I probably wouldn't be bullish at this stage if they weren't so clear-eyed about how/where to put their cash to achieve the vision. Downside is a possibly even longer waits for service in some areas and slower Supercharger expansion and probably other stuff. Anecdotally, my service last month in SoCal was quick and easy.

Confusion: Cash flow positive tangibility. Elon mentioned that Tesla would be CFP without M3 capex. Is this evident in the Q2 ER numbers?

Short term, I don't expect any big moves (always risky). I'm satisfied having sold my short term TSLA from $235 down through $226. It looks like I can start buying some back now and tighten up the stops since we may be in a small range for awhile.

 

[brian45011]

From Q1 letter, page 3: Q1 2016 Tesla Shareholder Letter

You are right; I stand corrected. Most ( $ 115 million) of the $150 million was not cash but in Accounts Receivable So the revised numbers would be more like:

: Cash from Operations: -$188 million to -$223 million

Cash from Core Operations:-$45 million to -$80 million

Would you agree that the Customer Deposit balance at 3/31/16 likely included about $150 million in Model 3 deposits?

 

[dc_h]

Or just put out a table with number of deposits on each line of product, compared qtr over qtr. A company that manages so much autopilot data can easily manage to find the total reservation count for each line. That is, if it wanted to convey the true state of its business.

I get your point. Transparency is good governance. The funny thing is, two of the most successful companies of the last decade Amazon and Apple are among the least transparent. Apple more so under Cook, but the entrepreneurial leaders have a thing about holding back. So I'd rather deal with some uncertainty and get 50% yoy growth for 20 years than predictably and 5%.

 

[mmd]

You are right; I stand corrected. Most ( $ 115 million) of the $150 million was not cash but in Accounts Receivable So the revised numbers would be more like:

: Cash from Operations: -$188 million to -$223 million

Cash from Core Operations:-$45 million to -$80 million

Would you agree that the Customer Deposit balance at 3/31/16 likely included about $150 million in Model 3 deposits?

Could you explain from where you are getting this? Q1 letter doesn't say that M3 deposits were part of customer deposit figure. It only says, it was included in receivables.

I think, the problem is your assumption that 150k M3 deposits are counted in Q1. Q1 letter says "almost all model 3 deposits on the last day of Q1 are in accounts receivables", so it is likely that only the $115M is what's counted as M3 deposits for Q1 (end of day PST instead of midnight?). Here, I'm assuming your quote of "36% of $318M" from sec filing is correct, which I believe it is.

So, if we drop the less certain 150k M3 reservations counted for Q1, then the numbers can start making sense. If we also assume that M3 deposits weren't part of Q1 customer deposits, then the deposit numbers start meaning something.
Q1 customer deposits = $391.3M
Q2 customer deposits = $679.8M ( if $373M increase is due to M3, then the MS+MX deposits dropped by $85M)

 

[schonelucht]

With all that discussion on customer deposits : it also includes the majority of European SigX's. Each coming in at 40k Euro (over $50k at time of deposit) For me it was a very typical call. Not a lot to show for right now, but a lot of promises. Depending on your faith in those promises, the call was great or mediocre. With regards to the stock price : I can only assume that the stock is exclusively owned by strong longs.

 

[TMSE]

With all that discussion on customer deposits : it also includes the majority of European SigX's. Each coming in at 40k Euro (over $50k at time of deposit) For me it was a very typical call. Not a lot to show for right now, but a lot of promises. Depending on your faith in those promises, the call was great or mediocre. With regards to the stock price : I can only assume that the stock is exclusively owned by strong longs.

Do you have an estimate on overall SigX reservations fulfilled in Q? How many left?

I saw few comments here that they were asked by Tesla to either confirm or cancel their SigX reservations. I guess most are done away with by now.

 

[MitchJi]

I have a feeling that what he is saying is, full autonomy will be announced as a Model 3 option this December.

Not going to happen until after they announce that the HW for full autonomy has been added to the MS-MX IMO.

Good session. Frustrating in that details not forthcoming, but understandable. EM very optimistic. He says full autonomy will be here sooner than people think. The hardware is available, it is a matter of software design, including narrow AI (ie focused on one job and not able to take over the world :-o ). They are happy with S/X production, he is no longer losing sleep over it.

Doesn't want to canabalize current MS-MX sales.

His statements about full autonomy combined with talking about new features driving demand for the MS-MX should be very exciting for investors!

I was a little concerned about M3 canabalizing MS-MX sales. The MS-MX 60's appear to have solved the problem. Excellent solution made possible by Tesla's lower than expected pack costs.

 

[NicoV]

I'm with you! That's about the only thing that could make me sell my shares.

Actually, JB would have to give up also before I sell.

 

[Mario Kadastik]

Not being mentioned much, but the call started with comments on cash and some way to look at it is that at end of 2015 Tesla stood on $1.19B. They have now at end of Q2 $3.25. During that period they had a boost from secondary $1.7B and M3 reservations $0.37B. So doing the math we see: 3.25-1.7-0.37-1.19 ~= 0. So all-in-all the buildout and delivery of ~29k cars and doing cap-ex and R&D for M3 and GF has resulted in ~0 cash burn. Have I misread stuff?

 

[schonelucht]

So all-in-all the buildout and delivery of ~29k cars and doing cap-ex and R&D for M3 and GF has resulted in ~0 cash burn. Have I misread stuff?

Yes, you fail to account for an increase in their debt position.

 

[mrdoubleb]

Could you explain from where you are getting this? Q1 letter doesn't say that M3 deposits were part of customer deposit figure. It only says, it was included in receivables.

I think, the problem is your assumption that 150k M3 deposits are counted in Q1. Q1 letter says "almost all model 3 deposits on the last day of Q1 are in accounts receivables", so it is likely that only the $115M is what's counted as M3 deposits for Q1 (end of day PST instead of midnight?). Here, I'm assuming your quote of "36% of $318M" from sec filing is correct, which I believe it is.

So, if we drop the less certain 150k M3 reservations counted for Q1, then the numbers can start making sense. If we also assume that M3 deposits weren't part of Q1 customer deposits, then the deposit numbers start meaning something.
Q1 customer deposits = $391.3M
Q2 customer deposits = $679.8M ( if $373M increase is due to M3, then the MS+MX deposits dropped by $85M)

Couple of things to consider...
Model X Signature Series reservations were $40k a piece. We probably had about 3k of those (I think about 1.2k US, 1K EU and the rest is Asia and other markets) based on data at TMC. So that's $120M that "inflates" the numbers.

So it is safe to assume all US sigs have been delivered by end of Q1 and all the rest will be delivered by end of Q3. In any case let's take off $40k x 1.8k, so roughly $72M from the 680M to exclude X sigs for the rest of the world. That leaves 608M. Now let's deduct $373M for M3. That leaves $235M.

A production S/X reservation is $2,5k, which would indicate a 95k backlog.

Now that seems a little unlikely so we probably have more M3 reservations already, but at the very least it shows a healthy backlog.

 

[Mario Kadastik]

Yes, you fail to account for an increase in their debt position.

Ok, valid point, let's see. Long term dept went from 2.65B to 3.25B (increase of 0.6B) and Other liabilities went 1.65B to 2.39B (increase of 0.74B). Of that 0.48B was RVG and increase in inventory of 0.33B, neither being a true negative accounting in total to 0.81B. So the total operations for H1 was -0.5B. At the same time property and equipment went up 0.59B so without property purchases the year so far would have been positive.

In general, delivering only ~40% of the years cars I would expect the second half could nicely indeed put them in the black barring M3 cap-ex and increasing further as the margins on the X improve.

 

[schonelucht]

Do you have an estimate on overall SigX reservations fulfilled in Q? How many left?

There are very little SigXs fulfilled in Europe. At most 50 I'd guess. It's nearly impossible to say how many are still left from the original 592. If I had to guess, 200 and ten times that for regular production? All in all maybe $40M in X deposits from pre-production reservations for Europe. Problem is huge uncertainty. Could be $20M, could be $60M. Anyway, I stopped really caring for customer deposit number when I learned that it includes further payments up to delivery as well. Just 1000 in transit cars that prepay (part of) the full amount earlier swing the customer deposits by such a huge margin that it becomes very difficult to estimate anything meaningfull.

 

[Mario Kadastik]

Oh and while I remembered the SCTY ER to be at the same time as TSLA it seems to be a week later so the next "catalyst" for motion is likely to be next week with SCTY ER and colour on the merger given.

 

[schonelucht]

Simple question : why did non-GAAP gross profit decline quarter over quarter?

 

[ev-enthusiast]

Just the reporting on it, I expected more negative articles - but many seem to focusing on the increase in orders & production and ongoing expensive investment in capital to bring forward the Model 3. I was surprised at how flattering some were.

I could imagine that media folks get that second half of this year will have a different story to tell.
No more reporting of bad news like Model X ramp issues but reporting of good news like again massive growth (TM will deliver about the same amount of vehicles during H2 2016 as they delivered during entire 2015), progress about the easier to build Gen III vehicle Model 3, and so on.
As nobody wants to tell a well known story from yesterday over and over again, I do in deed expect journalists to pick up on the real news and report more and more of these new stories that might happen during H2 immediately.

BTW I saw the first Model X yesterday in Germay on the Autobahn A9 driving from Nuremberg to Munich. With regular license plates I have the impression it was registered by a private person. Nice to finally see the Model X on the road in Germany.

 

[schonelucht]

Scratch that last question, it's the ZEV credits.

For me the gross margin is the positive story in the financials for this quarter. I stated my concern on them before release here but it seems the company is in a good position to counter the negative effects of the discounted 75kWh (aka 60 model). Not only did they guide it up, they already showed a marked improvement for this quarter as well.

 

[Mario Kadastik]

Simple question : why did non-GAAP gross profit decline quarter over quarter?

Now if I read it right, the GAAP gross profit increased 22M while at the same time the total deliveries was smaller and services and other declined sequentially in revenue by a third (far less CPO-s in Q2 as a bunch went to loaners as explained in shareholder letter). In non-GAAP the adjustment for RVG was 88M for Q1 and 44M in Q2 meaning that far less cars were leased with RVG. Total non-GAAP GP decline is therefore ~22M while services and other GP declined only 3M. So about 19M GM is unexplained.

Of that part comes from delivering less cars, but that's only about 420 cars (explains ~9M GM deficit). Another 10M would have come from lower GM on X as the mix of S to X in Q1 was 85%/15% and in Q2 was 68%/32%. As was shown from basic math above the GM difference between S and X is close to 10% so higher mix would have pulled down GP and I'm actually surprised it's not declined more

 

[ev-enthusiast]

Unbelievable, I found the Mark Spiegel interview in the big German newspaper 'Süddeutsche Zeitung'.
Elektromobilität – Dieser Mann prophezeit Teslas Untergang
New Yorker Hedgefonds-Manager – "Tesla ist ein schreckliches Unternehmen"

So much misinformation, so much hate, why the hell?!