Thread by @CoverDrive12

Earnings Alert! 🚨🚨🚨

1/ OK now, where to begin? $TSLA pulled out all the stops to deliver a record number of cars last quarter.

2/ It hit right in the middle of Tesla’s guidance, but surprised most pundits who were expecting something in the 85-90k range. And there was a lot of strange gamesmanship played around “leaked” emails.

3/ But why was it important to push for a record? Was it to restore the legend of exponential growth following a dismal Q1? It hardly seemed worth the effort, especially considering the bleak sales outlook for Q3.

4/ Was it to liquidate swelling inventories of overproduced cars, particularly MS and MX? That factored in for sure. But it doesn’t explain the urgency at the end of Q2. The only thing I know is that we’ll find out soon after the earnings report.

5/ Q1 was a throwaway quarter, both for sales and for earnings. But now with record sales, there will be great pressure to print a good earnings number in Q2. So how good will good be? Record profit to go with record sales? Similar profit to Q4?

6/ Or maybe it’s good enough just to break even on non-GAAP? Let’s start mining into the numbers. And let’s begin with a revised approach to regulatory credits.

7/ Historically, I used to separate ZEV credits from automotive revenue so that Q-Q trends could be seen in automotive margins. But with the huge GHG spike last quarter, it now seems prudent to separate all regulatory credits for Q-Q comparison. I’ll call them REG credits.

8/ The first step is to re-calculate Q1 gross margin without REG credits. There’s also a matter of the auto revenue writedown, but as you’ll see it had negligible impact. But when REG credits are stripped out, the GM drops from 19.9% to 15.6%.

9/ That’s down from 23% in Q3/Q4 when Panasonic was providing price concessions! Think about that.

10/ So this is now the reality of Tesla’s business model. Plainly stated, without significant regulatory credits or significant supplier concessions, there is no possibility that Tesla can cover operating expenses. There is no possibility for sustained GAAP profit.

11/ Gross Margins and COGS: There are factors that could push GM’s higher or lower in Q2. I’ll assume no change from Q1’s “ex-REG” GM’s and calculate GOGS from that.

12/ Automotive Revenues: I ran out of time to deep-dive the ASP’s so I’ll just shoot from the hip. All models should be lower on average. Assuming $200 million Reg credits, we should expect $ 5.7B automotive revenue. Well below Q3/Q4 levels.

13/ Tesla Energy: Remember when energy storage was going to be huge? Battery storage has gone nowhere after the early fanfare. Solar city, to the surprise of no one is all but abandoned. Walking away from warranty/maintenance obligations. Assume no change from Q1.

14/ Services and Other: Tesla will be under great pressure to find a solution for their money-losing used car business. That should improve the number, but I expect that the sheer volume has increased. So I’ll again leave the net unchanged from Q1.

15/ Operating Expenses: With the addition of new platforms and exponential service and sales growth, Tesla’s OpEx should be increasing 10-20% this quarter. Instead, I think that Tesla will conserve cash. I expect no change.

16/ Operating Income: The most fundamentally important number, as I like to say. A big improvement from Q1, but half a billion worse than Q4 at similar sales volume.

Sundries: Just a carry over from Q1. No way to guess one-time charges/benefits.

17/ Bottom Line: Here you go – a $300 million loss. To my dismay, it’s exactly in line with analysts’ non-GAAP EPS. Enjoy and we’ll see you on Wednesday night.