Based on the 4Q earning report and some forward-looking statements, I believe there’s enough data to take a swag at full year earnings. I’ll start with these assumptions:
Auto sales other than Model S – seems to be running at $18M/qtr, so I’ll continue with that.
Development Services – was $12M last qtr. I’ll continue with that, and assume a 100% gross margin (i.e. at a cost to Tesla of $6M).
R&D – Based on Elon’s guidance, I will reduce it by $9M to $60M/qtr for the year. But keep in mind that at some point, they will have to kick off Model X development, so it will have to go up substantially. But 2013 is the year of the S.
SG&A – Rose 8M last quarter. New stores, service centers, superchargers, warranty exposure coming this year. So I’ll say $50M in Q1 and increasing by $5M/qtr.
Things I Just Don’t Know – Loan repayments, Taxes, Interest, ZEV credits. If anyone could help me with this, I would appreciate it. Some will add, some will subtract. So for the time being, I’m leaving them off the spreadsheet. Also, I do not try to account for depreciation or capital expenses.
Gross Margin – Currently at 8%. I’ll assume 15%, 19%, 22%, and 25% for the next 4 qtrs.
Model S Deliveries and Average Retail Price – I’m assuming that the cars will become increasingly affordable as 40kWh and 60kWh make up a larger percentage of deliveries. I will also assume that the factory becomes more efficient and can crank out more cars. Deliveries per qtr: 4500, 5000, 5500, 6000. ARP per qtr: 100k, 85k, 80k, 75k.
The Spreadsheet Says – Plugging all this into a spreadsheet, I get the following net profit (GAAP) by quarter: Q1 $48M loss, Q2 $42M loss, Q3 $36M loss, Q4 $30M loss. $156M loss for the year.
To be honest, I feel these estimates represent a best-case scenario and it’s unlikely that Tesla will be able to perform this well. Again, any help in refining these numbers is welcomed.
With the production lines already set-up, TSLA is focussing on efficiency. What involves is optimizing the presses, stamping, and welding so that the tolerances become tighter and there is less % of cars that need rework with extra labor. With the kind of team they got, they will figure this out sooner than later and will be able to cut their direct labor cost by half by reducing employees and the hours that the remaining employees work. I think they could cut the labor/car by half, especially with volume going up. Certain manual assembly like motors, etc could be further automated. Improved time and motion. All this usually happens quickly, especially the first 80% improvement.
Material procurement can be a challenge, especially for single sourced items. Tires from Czech Republic that need to be airfreighted? How about something local? Gearbox, electronics, glass, etc can go down in price big with volume purchases even with just 20,000 cars/year. Even Panasonic batteries should come down in price when 150,000,000 batteries/year are purchased.
I think Tesla will move quickly to cut the costs and we should see the BULK of results in this quarter.
Model X is a challenge. They will have to set up separate stamping presses, casting, etc. Welding can be done on the same lines, but it will be tricky. Painting and final assembly can be shared. Tesla will have to generate significant profits from Model S to fund X, or be forced to dilute again.
Ajitmed, you do understand, of course, simply saying costs can be reduced and actually seeing reduced cost is no small task? Mercedes is the oldest car producer on the planet and production costs still dictate Mercedes not being able to show anything above a 9.??% gross profit. How can you flatly state Tesla can do the same? These guys have had at least three years to prepare, from a costing standpoint, production. Forget this phantom "ramp up" blabber. Not a bit of production should have been a surprise for Tesla. The bugaboo is material cost. Unless Tesla chooses to buy the cheapest of the cheap materials, there are no discounts. It's a boutique operation. No large supplier will be prepared to provide Tesla the same discount as say, Audi, or Lexus, or BMW. It's an absurd notion for you to post such rubbish.
Temagami, I haven't gone through your numbers at all, appreciate you doing the work though. I noticed some here have brought up taxes and you mentioned it's an "unknown" in your equation. It's pretty safe bet to say Tesla has accured plenty of NOLs to make the tax question mute anyways. That'll be a question for 2014 at the earliest, no?
I spent some time at lunch educating myself on the definition of Gross Margin (GM). Here's the quiz: if you manufacture a product for $100 and sell it for $150, what is your GM? Is it 50% or 33%?
The answer is 33%. You divide by gross revenue, not COGS. OK, with that correction to my spreadsheet, earnings look much better. Only $38M loss in Q1 and $87M loss for the year. To break even, they would need to be building about 25,000 cars annually at 25% GM.
Don't forget the state of california has granted $10,000,000 to TESLA for the developement of model X.
Model X pretty much uses the same type of batteries, same plateform so I highly doubt R&D for X will be higher than S being that almost every component of X derives from S drive trains.
Sentiment: Strong Buy
Firstin, yes it's good not to forget the California $10M grant for Model X development. While this improves their cash position, it does not affect earnings or profit. Also, keep in mind that their current R&D cash burn rate is $5M per week. To put it another way, they have to sell 333 cars per week at $100k at 15% GM just to pay for R&D! Seriously, I'm not exaggerating ! Check it with your own calculator.
you were very careful with all the negatives, and then you brushed right over the sales $... 4500 x $60,000 per car = $270,000,000. that's low end, assuming all they sell is the lowest priced model. but they said they've had strong interest in the higher end models so... your own #'s have them profitable in Q1. which is what they're predicting. maybe your spreadsheet has a bug...
The average selling price of model S with options is about $80,000 not $60,000.
TESLA was able to earn over $300,000,000 last quarter with 2,400 Cars alone.
1st quarter estimate for deliveries are 4,500 model S, which can equate to over $500,000,000 in revenue.
George, I'm trying to be careful with all numbers. I'm not sure where you saw $60k/car. Here's what I'm using for sales and average retail prices for the 4 quarters:
Q1: 4500 deliveries @ $100k per car
Q2: 5000 @ $85k
Q3: 5500 @ $80k
Q4: 6000 @ $75k
For the first quarter, I have revenues of $450M on model S sales, $18M on other automotive sales, and $12M on delvelopment services for total revenues of $480M. With a GM of 15%, that yields a gross profit of $62M. Subtract from that $110M in operating expenses (Q4 was $114), and you are left with a loss of $48M.
I'm absolutely not trying to mislead. And I'm willing to plug in better numbers if you would like.
First off their will be no model x production this year. Selling expenses will drop cause the main cost is setting up the stores,design etc...Costs will go down. They are too busy with Model S production. If they wanna do model x they will need to re-issue shares to fund expansion. Its impossible to predict numbers for this company at this point. Musk says profits with only six weeks left in the quarter, you say loss of 47 million. If your closer to the number, Musk will lose all credibility.
Flop, thanks for the response. It was my understanding that they were opening a couple dozen new stores this year. They also said that they were adding sercive centers. But maybe nothing in the first quarter. I'll look at reducing my SG&A estimate. The R&D costs for the X will be concentrated in the Beta phase where most of the intensive validation testing takes place. I don't know what their development schedule is, so I left R&D at $60M/qtr for the year. Do you feel that's too high?
Nomore, thanks also. Since loan repayments do not affect income and interest income/payments are down in the noise, I'm going to leave them off the spreadsheet.
Sanity Check - As a sanity check, I compared my spreadsheet against analyst estimates. My revenue estimates were exactly in line with analysts. I'm showing $480M for Q1, $1.885B for the year. I have 20% average GM for the year. I have operating expenses starting $5M less than Q4, and growing $5M/qtr. All this looks very reasonable (if not generous) to me but my earnings estimates are 50% lower than the most pessimistic analyst. Since I'm using 4Q12 as a basis, I don't see where there can be a large error. In order to come close to breaking even in Q1, there will have to be a huge source of income that does not show up in the Q4 earnings report. ZEV credits?
Loan principal repayments will be $13.7 million/quarter (affects cash flow but net income). Interest is paid on the remaining balance with the quarterly principal installments. The last 10Q had a good summary of draws and interest rate ranges on page 15; I'll let you crunch the numbers. The last 8k showed interest expense at $27k for 4Q12 but $254,000 for the full 2012. Both numbers look low to me but given DOE's low rates, interest expense is relatively inconsequential. They capitalized interest during the draw down period, but that should have ended no later than 3Q12. When the 10k is filed, you might deduce an approximation of the quarterly interest expense going forward based on how much is being pre-funded to the restricted cash accounts. Have fun!
Draw-downs received during the three months ended March 31, 2012
Draw-downs received during the three months ended June 30, 2012
Draw-downs received during the three months ended September 30, 2012
Remaining balance, September 30, 2012