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1) $TSLA should announce a Q2 GAAP net loss of -$300m (-$602m ex-ZEV/GHG credits) vs consensus estimates of -$262m. Q2 FCF should be -$133m vs consensus of +$236m. Even if I’m wrong & $TSLA announces a slight net profit & FCF >$236m, it should be a “sell on the news” event.
2) On the eve of $TSLA's Q2 2019 results announcement, I am at peace with my earnings model, thanks to great input from many $TSLAQ members. Hence my shorting 60% of intended position today, rather than wait till post-results, as originally planned. Here's what I grappled with.
3) $TSLA's disclosures of revenues & costs simply can't be reconciled w/ delivery numbers & $TSLA's guidance on gross margins by model on earnings calls.
4) Here's one prime example from my closest $TSLA modeling compatriot, @4xRevenue (note the yellow-highlighted adj. COGS/unit #'s in the last line at the bottom). Despite Q1'19 volumes plunging by -31% from Q4'18, COGS/unit barely changed.
5) First point of order: Q2 pricing analysis, mainly of the Model 3. Being a $TSLA bear, I used a $TSLA bull's excellent mix analysis for the US--58% of Q2 global M3 sales. Monthly mix by @TroyTeslike was nicely summed up here by @scidood:
6) Conclusion: US avg Model 3 price comes to $48K vs "approximately $50K", according to Zach Boy CFO on Q1 conf-call. Big downside risk here is that Autopilot was made free in Q2, which means the price drop QoQ could be larger than I'm assuming.
7) For M3 mix in EU & China, I simply assume that 70% was LR AWD @ $50K & 30% was Performance @ $60K. Conclusion: EU & China avg M3 price in Q2 was ~$55K. Canada was said to be 80% SR+ due to the tax loophole, so overall global Model 3 avg price should've been $50K vs $54K in Q1.
8) Models S/X prices were officially cut by 6% in Q2, but there is ample evidence that prices fell much more on inventory liquidation: In June, a 2019 Model X 75D in Germany was offered at €77K, which was 20% less than the official price & 33% below my estimated cost of the X.
9) Given all these px assumptions, I get the following:
(a) M3 gross margins fall by 1.1%-points in Q2 despite 52% higher volumes vs Q1.
(b) S/X GMs are flat despite steep px-cuts, as volumes are 46% higher.
(a) might be overly bearish, but (b) could be overly optimistic.
(a) M3 gross margins fall by 1.1%-points in Q2 despite 52% higher volumes vs Q1.
(b) S/X GMs are flat despite steep px-cuts, as volumes are 46% higher.
(a) might be overly bearish, but (b) could be overly optimistic.
10) Other key assumptions for Q2:
(a) ZEV/GHG credits were $300m.
(b) SG&A is flat w/ Q1.
(c) FCF is negative -$132m as inventory drop of $453m is drowned out by Payables down $500m, Receivables up $400m, & capex (for Model Y) up by $120m.
(d) Cash on hand: $4.3bn.
(a) ZEV/GHG credits were $300m.
(b) SG&A is flat w/ Q1.
(c) FCF is negative -$132m as inventory drop of $453m is drowned out by Payables down $500m, Receivables up $400m, & capex (for Model Y) up by $120m.
(d) Cash on hand: $4.3bn.
11) $TSLA's share price is up by 45% since its June low, mostly on short covering. Fears/hopes of another magical Q3'18 earnings beat? Highly unlikely: Q2'19 volumes are 14% higher vs Q3'18, but prices are down >20% & costs likely haven't changed much. But here's the main point:
12) The US has run through its demand for high-end M3s & is set to see its mix comprised mostly of low-end SR+ (49% of June sales); EU has not only run through its demand for high-end M3s, but saw sales fall by -7% vs Q1. In China, the M3 is clearly a flop w/ only 8.5K in Q2. So:
13) How will $TSLA sell 101K during Q3 & Q4 just to meet the lower end of its 2019 guidance? If prices are flat vs Q2 (they're 4% lower now), Q3 revenue growth will stall to merely +5% YoY. Think of how that'll sink in among growth investors. Focus on Q3.
