TSLA - Tesla Motors

[ERICOPOLY]

The Model Y is ready for production.

 

The Roadster will do 0-60 in 1.9s.

The Roadster will have a 620 mile range.

 

I haven't met a Tesla owner who doesn't love their car.

 

There are better stocks to short.

[alpha]

 

Demand for the Model 3 seems insatiable. And this is a small sedan in an SUV/crossover market. When the Model Y is ready, Tesla will crush it even more so. What a time to be alive...

 

Has Tesla published the current Model 3 order back log? And what the reservation break down is between trim levels (e.g. 35k model vs 80k model) ?

 

 

[Grant]

Maybe they really cherry picked which deliveries (given their reserved list) to make (focusing on the highest margin kind).

 

They did prioritize Performance trims over AWD, but not to an extreme degree: https://docs.google.com/spreadsheets/d/1-18YeBkEP_emmCMIQRb9l7kCbtaFUpT4uhzrmJXBzU8/edit?usp=sharing

[pcm983]

still waiting for someone to explain what the reservation number is?>!?!!?!?! customer deposits are always so flat quarter after quarter!!!?!!??!!?!

[oddballstocks]

This is a SV growth story. In 10 years you'll have a Tesla phone, Tesla microwave, Tesla house. They will DOMINATE the world.  What's even more amazing is it requires $0 in capex.  Their mindshare is so incredible they can create products out of thin air and people buy them.

 

The question is what reaches $1,000 per share first TSLA or FB?

[Grant]

No one expected 20+% Model 3 gross margins and a decrease in SG&A. The only near-term bear thesis remaining is accounting fraud.

 

My apologies for this post. It is too early to jump to conclusions. We need to see the 10-Q.

 

In the call, Deepak said "excluding onetime items, our OpEx decreased sequentially by 5%". This implies opex was reduced by $62M from one-time items. We also know they sold $52M worth of tax credits. This is $114M worth of one-time items before we even know what supplier rebates Tesla received, and how they were accounted for.

[kab60]

Jesus. I thought this was the most ob :-XI'd ever seen (upside probably capped at 420$ so unlike cannabis stocks you couldn't get completely burned). Glad I stick to long only. Shorting must be friggin' tough. :o

[SHDL]

This is a SV growth story. In 10 years you'll have a Tesla phone, Tesla microwave, Tesla house. They will DOMINATE the world.  What's even more amazing is it requires $0 in capex.  Their mindshare is so incredible they can create products out of thin air and people buy them.

 

The question is what reaches $1,000 per share first TSLA or FB?

 

That's what really sets them apart isn't it.

[Gregmal]

Tesla has never been a numbers story. I wish the business well but find it odd that now all of a sudden when everyone begins obsessing over the numbers, that the numbers are great...Elon always seems to find one way or another to tell the story that people want to hear.

 

Yeah, super odd--must be "fake news". Elon always somehow finds a way to do the impossible like making rockets land upright  ;D

 

Wonder why if he could "fake" this earnings release, he didn't go ahead and fake weekly sales (which people have been "obsessing over" for over a year now and are much smaller than he had forecast)...Fact is, they don't really need 10k Model 3's a week to make decent cash flow. Guess everyone fixated on how bad Elon "missed" his unrealistic estimates (anchoring bias) without realizing that TSLA could do very well financially even falling significantly short of them. (If people haven't noticed, Musk tends to set "unrealistic", impossible reality-distortion-field like expectations which don't necessarily need to be met in order to succeed).

 

Demand for the Model 3 seems insatiable. And this is a small sedan in an SUV/crossover market. When the Model Y is ready, Tesla will crush it even more so. What a time to be alive...

 

Why so defensive? Especially if you don't even have a position? It's not exactly breaking news that Tesla can get creative with it's reporting. Just ask all the employees that keep leaving. I'm not even saying they are doing anything illegal but being oblivious to obvious red flags(or even worse making up justifications for them) is a recipe for disaster.

[Investmentacct]

The Model Y is ready for production.

 

The Roadster will do 0-60 in 1.9s.

The Roadster will have a 620 mile range.

 

I haven't met a Tesla owner who doesn't love their car.

 

There are better stocks to short.

 

I haven't met a Tesla owner who doesn't love their car.

 

>>Ditto. Figuratively, Any of Tesla car makes the drivers feel like they are super human due to better cognition of surrounding and nimble pickup. Many have feedback about any of Tesla models ; 1960's dream Bond 007 cars are finally here. So when products are superior; they speak for themselves.

 

[MrB]

Jesus. I thought this was the most ob :-XI'd ever seen (upside probably capped at 420$ so unlike cannabis stocks you couldn't get completely burned). Glad I stick to long only. Shorting must be friggin' tough. :o

 

Kab the profanity is unnecessary.

[Grant]

I would love some feedback on my math mentioned in this tweet (spreadsheet is linked):

 

1/ $TSLAQ, I've estimated $TSLA's sales-only margins by model. I think S/X margins were also surprisingly higher, by 5%!

 

Could this be a one-time $280+M COGS reduction, what @WallStCynic hinted at? Maybe supplier rebates?

 

Can someone check my math? https://docs.google.com/spreadsheets/d/13-f2r5IgMuuCQkVyqqv3z--k41qPFtQlkI6l7vW-l_g/edit?usp=sharing …

 

2/ On the call, Deepak mentions opex was down 5% sequentially excluding one-time items. This implies a one-time savings of $71M. Together with the $52M in ZEV credits and the _hypothetical_ $280M of COGS reduction, one-time savings _could_ total $403M.

 

Thanks for any feedback.

 

3/ Please reply objectively. I'm interested in making money, not confirming biases.

 

The higher Model S/X gross margins really stood out to me.

[Cardboard]

Wow!

 

"Ditto. Figuratively, Any of Tesla car makes the drivers feel like they are super human due to better cognition of surrounding and nimble pickup. Many have feedback about any of Tesla models ; 1960's dream Bond 007 cars are finally here. "

 

Pot is legal in California isn't?

 

Cardboard

[SHDL]

So I spent (and may have wasted…) some time today looking through how some of the outspoken TSLA bears were reacting to the quarterly results on Twitter.

 

Some of them point out what they see as accounting irregularities, but I honestly can’t say I see a smoking gun…  Now that may well be because of my limited forensic accounting skills, but anyway, here are two examples:

 

 

1:  Depreciation as a percentage of revenue

 

The observation here is that depreciation as a percentage of revenue is suspiciously low this quarter (at around 7%) compared with recent history (around 12-14% for the last 3 years or so). 

 

My reaction:  I can confirm the numbers on this, but I don’t quite see why this is suspicious.  It is true that the company uses an accounting method whereby depreciation in tooling should be roughly proportional with production, but tooling only accounts for ~12% of their PP&E.  Their other PP&E items follow the usual straight-line depreciation schedule, where depreciation is proportional with time used, not volume produced.  So with their PP&E mix, if, for example, production and revenue were to go up 70%, depreciation as a percentage of revenue should go down 30%+.  And that is roughly what happened this quarter.  So I don’t see anything suspicious here.

 

 

2:  Receivables piling up

 

The observation here is that receivables are up in a big way, which is supposedly unusual and suspicious for an auto company. 

 

My reaction:  Yes receivables are up.  But according to their 10-K:

 

“We typically do not carry significant accounts receivable related to our vehicle and related sales as customer payments are due prior to vehicle delivery, except for amounts due from commercial financial institutions for approved financing arrangements between our customers and the financial institutions.”

 

My reading of the underlined part is that if I buy a Model 3 with a loan from a bank and the quarter ends before the bank pays Tesla, the amount that Tesla expects to receive from the bank shows up on Tesla’s end-of-quarter balance sheet as a receivable.  So if there are a lot of deliveries to customers like this late in the quarter there will be a big increase in receivables.  Again, I don’t see why that is a red flag. 

 

[Grant]

Depreciation should remain relatively constant as revenue increases, shouldn't it?

 

Like accounts payable (

), accounts receivable correlates well with revenue over the quarters. I don't see either of these metrics signaling a problem.

 

We did have an unexpected increase in S/X margins, surprisingly high Model 3 margins, and zero mention of how the supplier rebates are accounted for. As I just posted, this is where I see a potential issue.

[SHDL]

Depreciation should remain relatively constant as revenue increases, shouldn't it?

 

Like accounts payable, accounts receivable correlates well with revenue over the quarters. I don't see either of these metrics signaling a problem.

 

We did have an unexpected increase in S/X margins, surprisingly high Model 3 margins, and zero mention of how the supplier rebates are accounted for. As I just posted, this is where I see a potential issue.

 

Yes, and I too am pretty curious if there were any supplier rebates. That would obviously change my interpretation of the numbers they just put up.

 

I have this funny feeling that the numbers look too good in relation to the circumstantial evidence (esp. all the accounting people leaving almost as if they were running away from something). But so far I don’t see anything obviously wrong with them.

[A Dhandho Investor]

The numbers look really good, actually too good to be true. The sequential improvement in net income is + / - 1 billion. That is about 24k contribution margin per extra car delivered (37k model 3 & 5k model X/S). The explanation that they gave on the call, the fact that they had 30% less labor cost does not convince me. If labor cost as % of total cost is 20%, a 30% reduction is an increase in margin of only 6%).

 

A number of strategies that could have been used:

1. The factory gated cars from the burst week at the end of Q2 (the 5.000 cars of which 84% required rework). Maybe Tesla booked the majority of the costs in Q2 and only the cost required to rework in Q3. Made Q2 look worse and Q3 look better (could have shifted the margin with 600 million in Q3)

2.  Warranty reserves: Booking warranty reserves reduces revenues, but if Tesla decreased warranty reserves in Q3 the reduction would fall completely to the bottom line.

3. Cut back on service: could have allowed them to cut opex and avoid service visits (warranty costs) at the same time. Double win.

4. Sale of the loaner fleet to Enterprise (more than 1.000 S / X):  Enterprise probably did not pay top dollar, but if the COGS assigned to the fleet was low, it could have added to the margin

This is a more reasonable explanation for the surge in AR at the end of the quarter (on the call they stated that the surge in AR was due to the quarter ending in the weekend, but when past quarters ended in the weekend there was never such an effect).

5. Selling the same car twice: there were quite some stories of people that paid for a car that they did not receive during Q3. If Tesla succedded in selling certain cars twice and took the cash from both its margin doubles.

 

The 10Q will provide more details on the possibilities of the above scenarios, but as Sam Anter states "Never cook the books in excess of what is required to inflate the stock price."

 

In any case a number of other important take-aways / questions that I still have after reading the transcript and the Q3 note:

- capex further decreased in Q3: does anyone believe they are actually investing in Model Y, Semi, Model 3 China factory?

- Musk stated that the average investory decreased to 20 days at the end of the quarter. When using that factor, it is not possible to reconcile the number of cars in transit at the end of Q2, the number of cars produced in Q3, delivered in Q3 and cars in transit at the end of Q3.

- going from 5k model 3's to 7k model 3s requires minimum capex according to Musk: very strange that they still did not have a 7k week then..

- No European sales before the start of 2019

[Dalal.Holdings]

Lol...if only if every other company were scrutinized and treated with the same level of skepticism as Tesla...maybe then someone would have better foreseen GE's recent meltdown or Lehman's/Bear's/GM's bankruptcy 10 years ago. Lots of availability heuristic bias here due to persistent, intense scrutiny of Tesla (obviously lots of people who are also biased due to underlying short thesis). But hey, talking about TSLA and Musk (especially negatively for many) is a lot more entertaining than most other businesses, so the media (generate them clicks!) and investment sites like this one will continue feeding the availability bias (omg! another Tesla crashed/caught on fire!? Tesla's must be prone to crashing and burning up even though auto accidents and fires are very routine things).

 

Looking at Tesla's quarterly report and comparing it to Ford's which was also released yesterday--noting that TSLA sold a tiny fraction of cars as F did globally with F putting up an adjusted Op Cash Flow of a measly $100M (a tiny sliver compared to Tesla's) ...can't help but find it amusing how traditional automakers have no clue what's about to hit them (hint: a train whose speed is increasing at about 70% per quarter). Amusing also how someone who shorted F would have made a lot more money over recent years than everyone and their mother who has shorted TSLA. I guess shorts may not get the downsides in jumping in on a crowded trade (esp when you have to find shares to borrow)...

[Grant]

Dalal, do you have a critique of my hypothesis? Can you explain how S/X margins increased so much this last quarter?

[oddballstocks]

Dalal, do you have a critique of my hypothesis? Can you explain how S/X margins increased so much this last quarter?

 

Clearly because the product is SO good and people love them!  The more love the bigger the margins get.

 

Of course I'm trolling some, but sometimes when I read a bullish thesis this is what it seems like.  I've seen very few longs with a model as to how they get from x to y and what justifies each.  This is just a magical company and you're either on the hype bus or you're some terrible human who hates the earth and somehow is opposed to saving humanity.  No one can explain margins, or why numbers are what they are. But they are saving the world and anyone questioning it isn't, so there's no discussion, and no attempt to.

 

I think part of the problem is this is a luxury brand, but also a luxury brand with a mission.  Tesla owners (and I'm infering this from reading forums, posts etc) look down on those with gas cars.  We don't 'get it' and of course most people don't have $150k to dump into a vehicle either, especially when $150k buys you a house in most of the US.  So there is a superiority complex, a luxury complex, and with that why would you need to explain things to peons?  This is really a 1% purchase. The interesting psychology is with the Model 3 aspiring 1%'ers can join the club for $50-70k.

 

No intention to offend anyone who owns one. Congrats, as Buffett has said you've hit the genetic lottery and are wealthy. I'm glad you can enjoy the fruits of your wealth with a nice purchase.  But I think it's unfair to extrapolate your reality to presume that's what it's like for all Americans.

 

I think part of the reason bulls (and most are owners) have trouble discussing this is because personal identity is wrapped up in this purchase.  If you buy a very expensive membership to a very exclusive club how open are your eyes to problems with that club?

 

 

 

[Gregmal]

Dalal, do you have a critique of my hypothesis? Can you explain how S/X margins increased so much this last quarter?

 

Clearly because the product is SO good and people love them!  The more love the bigger the margins get.

 

Of course I'm trolling some, but sometimes when I read a bullish thesis this is what it seems like.  I've seen very few longs with a model as to how they get from x to y and what justifies each.  This is just a magical company and you're either on the hype bus or you're some terrible human who hates the earth and somehow is opposed to saving humanity.  No one can explain margins, or why numbers are what they are. But they are saving the world and anyone questioning it isn't, so there's no discussion, and no attempt to.

 

I think part of the problem is this is a luxury brand, but also a luxury brand with a mission.  Tesla owners (and I'm infering this from reading forums, posts etc) look down on those with gas cars.  We don't 'get it' and of course most people don't have $150k to dump into a vehicle either, especially when $150k buys you a house in most of the US.  So there is a superiority complex, a luxury complex, and with that why would you need to explain things to peons?  This is really a 1% purchase. The interesting psychology is with the Model 3 aspiring 1%'ers can join the club for $50-70k.

 

No intention to offend anyone who owns one. Congrats, as Buffett has said you've hit the genetic lottery and are wealthy. I'm glad you can enjoy the fruits of your wealth with a nice purchase.  But I think it's unfair to extrapolate your reality to presume that's what it's like for all Americans.

 

I think part of the reason bulls (and most are owners) have trouble discussing this is because personal identity is wrapped up in this purchase.  If you buy a very expensive membership to a very exclusive club how open are your eyes to problems with that club?

 

Dalal is the highest conviction sideline participant I've ever seen.

 

All jokes aside I think this is pretty well said. I'd add that the group you talk about is probably also unaware of this bias as it's a very common theme in Silicon Valley. I mean Tesla is huge on the west coast and especially in techville. This is the same land where 200K is lower class and 3M gets you an 1800 square foot home. It's totally out of whack but a very real reality for those that live it. The same world where 100x sales is normal and 1B is chump change.

 

BMW is a luxury brand and so is Apple. So is LVMH; so is Tiffany. Many have larger TAM than TSLA, all have real profits, and none trade at the valuation TSLA does. While I think there are many high quality stocks that are currently quite cheap, I'm also beginning to get cautious as I've found a signal of the end of the run is value investors capitulating and becoming fanboys of froth stocks...

[ERICOPOLY]

Dalal, do you have a critique of my hypothesis? Can you explain how S/X margins increased so much this last quarter?

 

Clearly because the product is SO good and people love them!  The more love the bigger the margins get.

 

Of course I'm trolling some, but sometimes when I read a bullish thesis this is what it seems like.  I've seen very few longs with a model as to how they get from x to y and what justifies each.  This is just a magical company and you're either on the hype bus or you're some terrible human who hates the earth and somehow is opposed to saving humanity.  No one can explain margins, or why numbers are what they are. But they are saving the world and anyone questioning it isn't, so there's no discussion, and no attempt to.

 

I think part of the problem is this is a luxury brand, but also a luxury brand with a mission.  Tesla owners (and I'm infering this from reading forums, posts etc) look down on those with gas cars.  We don't 'get it' and of course most people don't have $150k to dump into a vehicle either, especially when $150k buys you a house in most of the US.  So there is a superiority complex, a luxury complex, and with that why would you need to explain things to peons?  This is really a 1% purchase. The interesting psychology is with the Model 3 aspiring 1%'ers can join the club for $50-70k.

 

No intention to offend anyone who owns one. Congrats, as Buffett has said you've hit the genetic lottery and are wealthy. I'm glad you can enjoy the fruits of your wealth with a nice purchase.  But I think it's unfair to extrapolate your reality to presume that's what it's like for all Americans.

 

I think part of the reason bulls (and most are owners) have trouble discussing this is because personal identity is wrapped up in this purchase.  If you buy a very expensive membership to a very exclusive club how open are your eyes to problems with that club?

 

On the other hand, perhaps you are not listening because you are dismissing their opinions because they are 1%'ers.

[A Dhandho Investor]

Eric, as far as I’m concerned I would be glad to hear your explanation about how they achieved those margins.

 

They had the best margins in the sector in one of the most challenging quarters (production hell & delivery hell). Also they have some clear disadvantages compared to other automakers:

- location of the plant (higher cost)

- proprietary ERP system that is not fit for mass manufacturing

- no railway connection from the plant to the rest of the country - all cars have to be moved by truck (Musk his idea of directly delivering to a customer’s house is definitely more costly than what traditional automakers do)

- ...

 

Funny thing is that all this also happened in a quarter (just after) the VP of manufacturing and the CAO left, but probably these people just had probably issues with Musk his ‘way of working’ .

 

Btw: someone received confirmation from Tesla IR that inventory is treated on a car by car basis. This could mean that cars that required rework (with for instance 5% margins) were held as inventory in Q3 while ‘good cars’ (with for instance 15% margins) were sold. This underbuilds the thesis somewhat that certain costs are still hiding within inventory.

[Investmentacct]

Dalal, do you have a critique of my hypothesis? Can you explain how S/X margins increased so much this last quarter?

 

Clearly because the product is SO good and people love them!  The more love the bigger the margins get.

 

Of course I'm trolling some, but sometimes when I read a bullish thesis this is what it seems like.  I've seen very few longs with a model as to how they get from x to y and what justifies each.  This is just a magical company and you're either on the hype bus or you're some terrible human who hates the earth and somehow is opposed to saving humanity.  No one can explain margins, or why numbers are what they are. But they are saving the world and anyone questioning it isn't, so there's no discussion, and no attempt to.

 

I think part of the problem is this is a luxury brand, but also a luxury brand with a mission.  Tesla owners (and I'm infering this from reading forums, posts etc) look down on those with gas cars.  We don't 'get it' and of course most people don't have $150k to dump into a vehicle either, especially when $150k buys you a house in most of the US.  So there is a superiority complex, a luxury complex, and with that why would you need to explain things to peons?  This is really a 1% purchase. The interesting psychology is with the Model 3 aspiring 1%'ers can join the club for $50-70k.

 

No intention to offend anyone who owns one. Congrats, as Buffett has said you've hit the genetic lottery and are wealthy. I'm glad you can enjoy the fruits of your wealth with a nice purchase.  But I think it's unfair to extrapolate your reality to presume that's what it's like for all Americans.

 

I think part of the reason bulls (and most are owners) have trouble discussing this is because personal identity is wrapped up in this purchase.  If you buy a very expensive membership to a very exclusive club how open are your eyes to problems with that club?

 

On the other hand, perhaps you are not listening because you are dismissing their opinions because they are 1%'ers.

 

It is tough to digest/imagine that product this good to come out of America in the industry which shun innovation for so long. Tesla Model 3 , by revenue outsold every single car sold by every other company for Q3. It is plain and simple fact to accept. Majority of sales in California. It will be huge mystery to solve until you start seeing , Tesla cars have 10x improvements from design, cost, network, technology standpoints. Tesla Model 3 at 46K  car packing 150K in technology value as software can increase the utility and value packed into a car. So, at 46K , curve has come down from 1%ers to 10%ers .  Total cost of ownership comes down over the years by hard savings achieved via energy savings, time savings via software OTA upgrades. As, 10%ers have started lining up in California/West it’s tough for rest of country to imagine, where people still believe , only 1%er owns this. People in California feel pain through gas prices, so it is easy to buy in to savings aspects of Tesla. So, if you count federal and state rebates , TCO in 5 years is 31K, so hardly it is 10%ers, it may be like 30%ers. How did all this achieved, a new battery with mid range, by moving cursor from right to left. It’s tough to understand technology and it’s improvements , unless we take out your financial margin lens a bit.

[SHDL]

Dalal, do you have a critique of my hypothesis? Can you explain how S/X margins increased so much this last quarter?

 

Grant, not a critique but just a few comments regarding your findings:

 

The gross margin increase for Models S/X you uncovered here (5-6 percentage points over the last year or so) didn't strike me as too out of the ordinary.

 

ERICOPOLY had a useful post a few pages up where he shared some numbers re: battery costs he got from a Tesla service center employee.  According to him, the price of a base Model S battery pack went from 48k to 25k in the ~6 years since product launch.  So that's a ~4k/year reduction in cost per vehicle.  That alone gives you a ~5 percentage point increase in gross margins per year, assuming each car sold for ~80k and the battery cost reduction was not passed through to customers. 

 

And it sure looks like they still have a lot of room for other operational improvements...