hello all. my first post here. been following this company a long time and i luv them.
i have been thinking about first quarter earnings a lot lately, esp after the last call when elon was adamant they would be profitable. until the 10k was released i couldn't make the math work. you guys have probably read the comments on seeking alpha etc talking about how there is no way tesla could make a profit. for example:
Despite Tesla's Light Results, It Could Be Turning The Corner - Seeking Alpha
the light bulb for me came on with the revelation that the various environmental credits added up to $40.9 million in 2012. using 2750 model s sales, that number works out to an insane $15k per car. considering they only earn the credits in a dozen or so states, it's even more amazing as it implies the credit value per vehicle sold in a qualifying state is probably something like $25-30k. all guesswork on my part. further research indicates that the 85kwh pack seems to qualify for maybe 50+% more credits than the 60kwh pack, although this is not clear to me as there are two types of credits at work: ghg and zev.
now a second light bulb has come on lately in reviewing the various delivery threads. we are starting to hear about vin numbers as high as 87xx getting scheduled delivery at the end of march. there are multiple reports in vin #8000s. considering the delivery numbers were 2750 last year, it seems like they must be well past their target of 4500 vehicles this quarter. is it possible they will produce 6000 cars in q1? that's what that vin number 87xx seems to indicate. i don't want to be so optimistic, so i am working with a number around 5200.
finally my last light bulb is in reading the forums about the problem reports. it seems that even though the number of model s on the road will triple this quarter vs. end of q4 2012, the number of problems are not exploding. that's consistent with what they said on the call, that the problems and issues with the car have gone down substantially. in some ways the biggest risk they face is a recall, but that might even be manageable if it was a small item (10000 cars x $2000 to fix each is still only $20m plus whatever reputational hit they take).
i am very curious what people think of my estimates as i have laid out below, if they sound realistic? also i really wonder if that delivery number could get to around 6000 the way the vin numbers are progressing. anyone have thoughts on that? every time i read about someone going to a service center sounds like they are loaded with model s's being prepped for delivery.
anyway, i run the math this way:
on revenues:
model s avg price $85000 x 5200 = $442 million (note: maybe low based on mix of p85/85/60 & options)
enviro credits $15000 x 5200 = $78 million (note: using $15k per car in credits, see above)
add development services = $5 million
total revenue = $525 million
on gross margin:
assuming they get automotive gross margin (excluding enviro credits) to +5%, which seems plausible given higher production. gross margins would be:
model s: $22.1m
enviro credits: $78m
dev services: $3m
total gross profit = $103.1 million
on operating expenses:
now figure $63m in r&d (declines from prior q as they projected) and $47m of sg&a (increase from prior q), gives you $110m in gaap expenses. take out the non-cash items, about $13m in stock based comp and $7m in depreciation and amortization... you got $90m in non-gaap expenses.
on ebitda:
implies ebitda of $13.1m, or about 11-12c per share. high estimate on the street has non-gaap eps at 2c. there's substantial upside to this if my delivery numbers end up being conservative, which based on the vin's i'm seeing is possible.
on incremental upside:
each additional 100 units would add $8.5m in revenue as follows:
revenue model s: 75000 x 100 = $7.5m (lower for 60kwh deliveries)
enviro credits: $10000 x 100 = $1m (lower for 60kwh deliveries)
assuming higher efficiency on later units, the gross margin impact of an additional 100 units may be $1.75m as follows:
10% gross margin on model s = 10% of $7.5m = $0.75m
enviro credits: $1m
total ebitda impact of additional 100 units: about 1.5c per share.
on reservations
if there's one worry i have it's here. the reservations seem to have fallen quite a bit in q1 vs. q4. it wouldn't surprise me if they got only 3k new reservations. if they ripped through 6k existing reservations, had another 1.5k cancellations, then the end of q1 reservation count will be: 15k (q4) - 6k (production) - 1.5k (cancels) + 3k (new) = 10.5k reservations remaining at the end of q1. if reservations don't pick up in q2 this will get the shorts blabbering again.
on future quarters
in light of the above, the comments on the call about future quarters start to make sense too. musk had said that the impact of enviro credits would decline, but margin would increase to compensate. so just hypothetically if you were to assume for q2:
5000 units x $82000 sale price = $410m sales plus
5000 units x $5000 enviro credits = $25m credits equals
$435 million total revenue
gross margin improve to 20% on automotive, then gross profit:
on model s: 20% x 410m = $82m plus
enviro credits: $25m equals
$107m gross profit
and once again you'd be talking about positive ebitda, maybe even 15c per share? incremental upside for each additional 100 units would be around 3c per share i'd guess.
and that's higher than the previous quarter even though the total revenues are $435m vs. $525m as estimated above.
summary
basically in summary, i am proposing that the shorts have far underestimated the value of the enviro credits, and that the production has scaled up faster than anyone expected.
thanks for your inputs.
i have been thinking about first quarter earnings a lot lately, esp after the last call when elon was adamant they would be profitable. until the 10k was released i couldn't make the math work. you guys have probably read the comments on seeking alpha etc talking about how there is no way tesla could make a profit. for example:
Despite Tesla's Light Results, It Could Be Turning The Corner - Seeking Alpha
the light bulb for me came on with the revelation that the various environmental credits added up to $40.9 million in 2012. using 2750 model s sales, that number works out to an insane $15k per car. considering they only earn the credits in a dozen or so states, it's even more amazing as it implies the credit value per vehicle sold in a qualifying state is probably something like $25-30k. all guesswork on my part. further research indicates that the 85kwh pack seems to qualify for maybe 50+% more credits than the 60kwh pack, although this is not clear to me as there are two types of credits at work: ghg and zev.
now a second light bulb has come on lately in reviewing the various delivery threads. we are starting to hear about vin numbers as high as 87xx getting scheduled delivery at the end of march. there are multiple reports in vin #8000s. considering the delivery numbers were 2750 last year, it seems like they must be well past their target of 4500 vehicles this quarter. is it possible they will produce 6000 cars in q1? that's what that vin number 87xx seems to indicate. i don't want to be so optimistic, so i am working with a number around 5200.
finally my last light bulb is in reading the forums about the problem reports. it seems that even though the number of model s on the road will triple this quarter vs. end of q4 2012, the number of problems are not exploding. that's consistent with what they said on the call, that the problems and issues with the car have gone down substantially. in some ways the biggest risk they face is a recall, but that might even be manageable if it was a small item (10000 cars x $2000 to fix each is still only $20m plus whatever reputational hit they take).
i am very curious what people think of my estimates as i have laid out below, if they sound realistic? also i really wonder if that delivery number could get to around 6000 the way the vin numbers are progressing. anyone have thoughts on that? every time i read about someone going to a service center sounds like they are loaded with model s's being prepped for delivery.
anyway, i run the math this way:
on revenues:
model s avg price $85000 x 5200 = $442 million (note: maybe low based on mix of p85/85/60 & options)
enviro credits $15000 x 5200 = $78 million (note: using $15k per car in credits, see above)
add development services = $5 million
total revenue = $525 million
on gross margin:
assuming they get automotive gross margin (excluding enviro credits) to +5%, which seems plausible given higher production. gross margins would be:
model s: $22.1m
enviro credits: $78m
dev services: $3m
total gross profit = $103.1 million
on operating expenses:
now figure $63m in r&d (declines from prior q as they projected) and $47m of sg&a (increase from prior q), gives you $110m in gaap expenses. take out the non-cash items, about $13m in stock based comp and $7m in depreciation and amortization... you got $90m in non-gaap expenses.
on ebitda:
implies ebitda of $13.1m, or about 11-12c per share. high estimate on the street has non-gaap eps at 2c. there's substantial upside to this if my delivery numbers end up being conservative, which based on the vin's i'm seeing is possible.
on incremental upside:
each additional 100 units would add $8.5m in revenue as follows:
revenue model s: 75000 x 100 = $7.5m (lower for 60kwh deliveries)
enviro credits: $10000 x 100 = $1m (lower for 60kwh deliveries)
assuming higher efficiency on later units, the gross margin impact of an additional 100 units may be $1.75m as follows:
10% gross margin on model s = 10% of $7.5m = $0.75m
enviro credits: $1m
total ebitda impact of additional 100 units: about 1.5c per share.
on reservations
if there's one worry i have it's here. the reservations seem to have fallen quite a bit in q1 vs. q4. it wouldn't surprise me if they got only 3k new reservations. if they ripped through 6k existing reservations, had another 1.5k cancellations, then the end of q1 reservation count will be: 15k (q4) - 6k (production) - 1.5k (cancels) + 3k (new) = 10.5k reservations remaining at the end of q1. if reservations don't pick up in q2 this will get the shorts blabbering again.
on future quarters
in light of the above, the comments on the call about future quarters start to make sense too. musk had said that the impact of enviro credits would decline, but margin would increase to compensate. so just hypothetically if you were to assume for q2:
5000 units x $82000 sale price = $410m sales plus
5000 units x $5000 enviro credits = $25m credits equals
$435 million total revenue
gross margin improve to 20% on automotive, then gross profit:
on model s: 20% x 410m = $82m plus
enviro credits: $25m equals
$107m gross profit
and once again you'd be talking about positive ebitda, maybe even 15c per share? incremental upside for each additional 100 units would be around 3c per share i'd guess.
and that's higher than the previous quarter even though the total revenues are $435m vs. $525m as estimated above.
summary
basically in summary, i am proposing that the shorts have far underestimated the value of the enviro credits, and that the production has scaled up faster than anyone expected.
thanks for your inputs.
. I think I will be picking up some more shares in this dip!!!! Fantastic news, just waiting to hear one of Elon's Tweets that the SEC would freak out about!!
