Tesla’s Promises, Q1/2018

From the Tesla First Quarter 2018 Update: (Outlook only, excluding non-car items)

“During Q2, we expect to shut down production for about 10 days, which includes the shutdown we took in April, to address bottlenecks across the lines and increase production to new levels. Our goal is to produce approximately 5,000 Model 3 vehicles per week in about two months.

LATE.  Per Bloomberg Model 3 Tracker, Tesla first exceeding 5,000/week in August 2018.

We are in the process of changing the quarterly production pattern of Model S and X vehicles for the various worldwide regions to ensure a more linear flow of deliveries through the quarter. We believe this will provide a better customer experience and reduce the stress on our delivery system. Consequently, [1] Model S and X deliveries in Q2 will likely be similar to Q1 but [2] should pick up considerably in Q3 to [3] achieve our goal of 100,000 deliveries for the full year.

[1] SUCCESS/SLIGHT MISS(?) Tesla delivered 25,000 Model S/X vehicles in Q1 and 22,000 Model S/X vehicles in Q2.  It is arguable whether being ~12.5% off is “similar to” or not.

[2] TBD. We will find out in Q3.

[3] TBD. We will find out in Q4.

Our long-term gross margin target of 25% for Model 3 has not changed. In the medium term, we expect to achieve slightly lower margin due to higher labor content in certain areas of manufacturing where we have temporarily dialed back automation, as well as higher material costs from recently imposed tariffs, commodity price increases and a weaker US dollar. On the other hand, our average selling price is significantly higher than prior projections, so we expect to achieve higher gross profit per vehicle than we previously estimated.

TBD. We will find out in 2019.  The goal is ambiguous since no timeline was set.

With increasing capacity for Powerwall and Powerpack products at Gigafactory 1, energy generation and storage revenues should continue to grow significantly throughout the year. Energy storage gross margins should therefore become positive in the second half of 2018. Our solar business is likely to experience mild growth for another quarter or two before our revised sales strategy starts to show its full impact in final deployments.

UNTRACKED. I don’t care about non-car items, frankly.

[1] Quarterly non-GAAP operating expenses should grow sequentially at approximately the same rate as in the past four quarters, with our [2] gross profit expected to grow much faster than our operating expenses.

[1] SUCCESS. From Q2: “Non-GAAP operating expenses in Q2 increased by roughly 3% compared to Q1 excluding the restructuring costs and stock based compensation.” In line with prior quarters.

[2] SUCCESS.  OpEx grew 8% or 18% sequentially, depending if you include one-time costs.  Gross profit grew 36% q/q.

Thus, provided that we hit the 5,000 unit milestone in our projected timeframe and execute to the rest of our plan, we will at least be profitable in Q3 and Q4 excluding non-cash stock based compensation and we expect to achieve full GAAP profitability in each of those quarters as well. Also, considering our capex targets, we expect to generate positive cash in Q3 and Q4, including the inflow of cash that we receive in the normal course of our business from financing activities on leased vehicle and solar products.

TBD. We will find out in Q3 & Q4.

We have significantly cut back our capex projections by focusing on the critical near-term needs that benefit us primarily in the next couple of years. At this stage, we are expecting total 2018 capex to be slightly below $3 billion, which is below the total 2017 level of $3.4 billion. Ultimately, our capex guidance will develop in line with Model 3 production and profitability. We will be able to adjust our capital expenditures significantly depending on our operating cash generation.

Likely success: Tesla has subsequently lowered Cap Ex guidance in Q2/2018.

Interest expenses in Q2 should amount to roughly $160 million and losses attributable to non-controlling interest should remain in line with the last quarter.

I don’t care.  (Interest costs were $158.5 million, but who cares.)

 

Work on Models and a Few More Articles

It’s been a fairly busy month this month, as I work to improve my modeling ability.  I’ve been putting in quite a few hours working on financial models, mostly for major American airlines.  As part of this, I’ve also posted a few more articles on Seeking Alpha, and received generally positive feedback:

  1. After earnings, I believe Delta Air Lines is a strong investment.  Like Southwest, they have very little debt compared to others, such as American Airlines.  I currently see up-side of 16-30%, which makes it a “Buy,” although I’m still on the sidelines personally.
  2. Southwest Airlines is a good investment, in my eyes.  Their balance sheet is quite strong, with much less debt that their peers.  I think that their safety due to this means they can get away with their relatively low growth rate, and it’s a good value.
  3. Is WWE Ready for a Big Push?: in which I suggest the shares are priced a few dollars too high. I tend to think that vanity stocks such as WWE, where fans will purchase them to own them, trade a bit high.  I also don’t think growth prospects are as good as the company suggests, but time will tell.
  4. An article on William Hill. To me, the company looks a bit undervalued, although there is a specter of legislation changes in the UK related to their slot-like machines.  That’s potentially worrisome for the business.  There’s also some possibility of expansion in the US, which would be lucrative if it came to pass.

My goal for the remainder of the month is to publish a few more articles, and to prepare for earnings seasons.  I’d like to have models that I like in-hand prior to earnings releases for each company, and to be able to adjust those models on the fly in order to quickly interpret those earnings and forecasts for the future contained in them.  I’m also currently thinking up some other possible revenue streams from my work, as I’m quite enjoying it, and not currently eager to go back to law firm life.