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I'm starting to wonder if JP knows absolutely nothing about GAAP or whether he's just being deliberately obtuse. That latest article is plain gobbledygook.
He's mixing up working capital with pure cash and suggesting that Tesla's financial situation worsens as deposits are converted to revenue, totally ignoring that those deposits are only a fraction of the total revenue stream from finalized car sales. Huh?
Pretty bad when a balance sheet noob like me can see the obvious miss. Embarrassing to be him.He's mixing up working capital with pure cash and suggesting that Tesla's financial situation worsens as deposits are converted to revenue, totally ignoring that those deposits are only a fraction of the total revenue stream from finalized car sales. Huh?
Deposits have always been part of working capital, it wasn't in any sort of escrow fund (unless you live in WA which has a special state law).If the sales backlog stays the same or increases by less than a factor of eight ($40k/$5k), the smaller deposits ($5k per car) do not offset the reduction of the $40k deposits sitting on the balance sheet. A reduction in the rate of new deposits will decrease working capital.
JP believes that the analysts did not model the deposits accurately. It appears that JP is concerned about TSLA's working capital and cash; revenues and income/loss are not affected by deposits.
If the sales backlog stays the same or increases by less than a factor of eight ($40k/$5k), the smaller deposits ($5k per car) do not offset the reduction of the $40k deposits sitting on the balance sheet. A reduction in the rate of new deposits will decrease working capital.
The big, unanswered questions are, (1) what type of additional capital does TSLA raise (equity), (2) when does TSLA raise that additional capital, and (3) how much do they raise?
Overall, there will have to be dilution...
JP lost me at *2,000* Signature reservations as that presumably makes his "math" better.
There are only 1000 Sig reserves correct? Or are there another 1000 international sig reserves?
So Tesla has a $5000 deposit from an owner. Months later when the owner gives Tesla another $54,000 dollars at delivery of their Model S, then Tesla looses money?
I'm confused. Is John saying Tesla has already put $54,000 (or $59,000) on the books so deliveries are loosing money because of the cost of actually building and delivering the car has them spending money they up to that point were (not actually) sitting on? Is that what he's saying? I'm not even sure what I'm saying.
So Tesla has a $5000 deposit from an owner. Months later when the owner gives Tesla another $54,000 dollars at delivery of their Model S, then Tesla looses money?
I'm confused. Is John saying Tesla has already put $54,000 (or $59,000) on the books so deliveries are loosing money because of the cost of actually building and delivering the car has them spending money they up to that point were (not actually) sitting on? Is that what he's saying? I'm not even sure what I'm saying.
Consider a Signature reservation. At the beginning of the year, Tesla had $40k of cash. The gross margin on the car is about 25%, so for a $100k Signature the COGS for the vehicle is (let's say) $75k. Therefore, at the end of this year, Tesla has $25k of cash in profits from the sale of the car, down from $40k of reservation cash. (Of course, Tesla no longer has an offsetting liability associated with the deposit, either.) So, in a sense, each Signature "costs" Tesla about $15k in net cash.
Nigel, I was assuming that during the course of the year Tesla had to spend $75k to purchase materials and labor with which to construct the Model S, which they then sold for $100k. And I was trying to stay entirely on the cash issue, which seems to be JP's concern.Not at all, in your example Tesla receives $60k more cash from the customer than they had before. Comparing cash flow with net income is a bit apples and oranges.
I was confused about this, too. I think he's trying to say that the analysts are not taking into account that the reservation part of the cost of the car has already been received - the analysts are modeling the full price of the car as new revenue.
Nigel, I was assuming that during the course of the year Tesla had to spend $75k to purchase materials and labor with which to construct the Model S, which they then sold for $100k. And I was trying to stay entirely on the cash issue, which seems to be JP's concern.
There might be a point vaguely similar to the one JP was making, but it's not the point he made:
Consider a Signature reservation. At the beginning of the year, Tesla had $40k of cash. The gross margin on the car is about 25%, so for a $100k Signature the COGS for the vehicle is (let's say) $75k. Therefore, at the end of this year, Tesla has $25k of cash in profits from the sale of the car, down from $40k of reservation cash. (Of course, Tesla no longer has an offsetting liability associated with the deposit, either.) So, in a sense, each Signature "costs" Tesla about $15k in net cash.
JP also seemed to be oblivious to the accelerating pace of reservations, adding cash to the coffers.
I fail to see the point of his editorials (if you'd even call it that). Aside from the fact that his math is wrong he clearly doesn't understand consumer products and vehicles. At Tesla's stage in the game the financials aren't going to tell you anything. Look at the product and the way that the company is managed. That's what Microsoft did when Apple was near the brink of bankruptcy and now look.
I also abhor the fact that he defends himself WAY too much and gets really snippy about it. He should put his money where his mouth is and go ahead and short the stock. I highly advise investors being influenced by what he is saying to tune out the noise and go with your gut and your own analysis. I'm doing that this time around and put my entire life savings into the equity. I know it isn't wise but I've seen the BETA product and came away impressed. I've read so many posts and also looked at the business model and management style of Elon Musk. It's VERY similar to Apple's so I put my money where my mouth is.
I think you're joking. But I've heard people say this with a straight face. Convince yourself all you like, you'll never be able to play the violin like Hilary Hahn, or beat Gary Kasperov at a game of chess, or fly by flapping your arms, or hold your breath for an hour, or re-grow an amputated leg.Or just concvince yourself - and you can do anything, absolutely anything!