To say issues did not go nicely final week for shareholders of Tesla (TSLA) could be an understatement. Shares dropped round and after the Q3 earnings report, through which administration delayed its Model three manufacturing ramp timeline by three months. There had been some objects within the monetary statements I used to be questioning about, so I hoped that the 10-Q submitting would clear them up. Unfortunately, the quarterly submitting has left me with much more questions.
The surge in stock write downs / badet disposals:
Over time, it isn’t shocking to see an organization like Tesla write down inventories, particularly as newer automobiles come out and choices change. As the enterprise grows, you would possibly anticipate write downs to rise primarily based on extra manufacturing. Additionally, the corporate has taken sure losses on the disposal of sure fastened property, and I am not speaking about depreciation. What I discovered shocking in current quarters although is the quantity of those write downs and glued badet disposals, so I made a decision to have a look at historic charges. The chart under exhibits how a lot these two objects are as a proportion of revenues by means of the primary three quarters of every fiscal 12 months.
(Source: Tesla quarterly filings)
In the primary three months of 2013, these two objects that seem as add-backs on the money circulation badertion totaled $7.eight million, a small a part of the $1.Four billion in revenues the corporate generated. However, by means of the primary three months of this 12 months, the 2 objects have totaled $158 million, an increase of 20 occasions regardless of revenues simply rising by 6 occasions. Since the stock write down goes proper into the price of automotive revenues, additional will increase right here will restrict any margin good points the corporate hopes to attain.
In Note 6 – Inventory, of the 10-Q submitting, Tesla actually does not go into particulars apart from saying the same old jargon about writing down inventories when the online realizable worth is lower than the present worth on the steadiness sheet and offering the quarterly / 12 months up to now figures. However, an evidence would have been good, contemplating the Q3 2017 stock write down of $26.2 million was up 75% over the prior 12 months interval, whereas complete revenues had been solely up 30%. While this stuff should not going to sink Tesla, they’re positively one thing to observe shifting ahead.
Dude, the place’s my $30 million?
In the Q2 investor letter, administration in its outlook part said that working bills within the second half of the 12 months ought to stay basically flat. Like many steerage factors in recent times, this badertion proved to be wildly inaccurate, as opex rose from $907.5 million in Q2 to $984.6 million in Q3. What was the reason for this? Well, here is what was stated within the Q3 letter:
Our GAAP working bills elevated sequentially by eight% in comparison with Q2, primarily as a consequence of greater promoting bills in preparation for giant will increase in car deliveries, bills related to report internet orders, and one-time bills of about $30 million.
I appeared by means of the 10-Q sections on working bills, and did not see something apart from discuss supporting the expansion of the enterprise, together with the launches of merchandise just like the Model three and Solar Roof. If these “one-time expenses” had been simply issues like that, it is no large deal, however why exit of your strategy to say that after which not present any additional clarification? What was this $30 million spent on?
What’s happening with Gigafactory spending?
Tesla estimates that prices of the Gigafactory are going to be $5 billion, though a part of that will probably be kicked in by Panasonic. In studying by means of the 10-Q, I seen a change in Note eight – Property, Plant and Equipment that I have never been in a position to determine. Take a take a look at what was stated within the Q2 and Q3 filings in regards to the Gigafactory:
Q2: We had cumulatively incurred and capitalized prices of $1.98 billion and $825.three million, respectively, for Gigafactory 1 as of June 30, 2017 and December 31, 2016.
Q3: We had cumulatively capitalized prices of $2.85 billion and $1.04 billion, respectively, for Gigafactory 1 as of September 30, 2017 and December 31, 2016.
Now there have been no modifications to the whole property, plant, and gear steadiness on the steadiness sheet or its particular person parts for December 31, 2016, so why did the cumulative prices soar by over $200 million? Obviously, the quantity was going to rise from Q2 to Q3, however why did it change for a hard and fast time limit? The 2014 and 2015 finish values did not change in future durations. I did not see something within the “recent accounting changes” part that will clarify this, and there was no word within the PP&E part to elucidate such a dramatic change.
How a few capital elevate?
We all know that administration says it doesn’t anticipate to lift capital, however we have heard that a number of occasions up to now. Based on the corporate’s steerage, the $1.eight billion raised in August could have been used up in about 4 or 5 months. If there may be any additional delay to the Model three, excessive quantity manufacturing and deliveries might not carry within the “significant cash flows” which might be anticipated in time to keep away from a capital elevate. Remember, there will probably be no lease program provided initially, which makes the state of affairs higher for Tesla.
We already can see that the corporate is being impacted by greater charges. The time period mortgage due December 2018 had a Four.Four% curiosity within the Q2 10-Q, however now it’s at Four.7%. The time period mortgage due January 2021 has gone from Four.5%-Four.7% to Four.eight%. Additionally, the “Revolving Aggregation Credit Facility” went from a spread of three.9%-Four.2% to Four.1% to Four.eight%, whereas the “Solar Renewable Energy Credit Loan Facility” went from 6.eight% to 7.zero%.
Was the web site director fired?
Those who’ve adopted my protection of Tesla know that I consistently criticize this “advanced technology” firm for not having a really consumer-friendly or useful web site. Below is only a pattern of things I’ve discovered on the location through the years which might be relatively doubtful:
- Currently, the “gas-savings” comparability for the Model S is a 2016 mannequin 12 months car. Most new ICE automobiles are actually 2018 mannequin 12 months.
- Different components of Tesla’s web site presently record the nationwide worth of electrical energy as $zero.12 or $zero.13 per kilowatt hour.
- When Tesla elevated the above talked about electrical energy value on sure pages, it didn’t decrease the “gasoline savings” consequently.
- Different Model X pages used totally different miles per gallon comparisons for the same ICE car.
- Configuration and order pages cited totally different supply occasions for Model S.
I might go on, however you get the purpose. While supporters of the title say I am nit choosing, this isn’t a really shopper pleasant firm on this respect. Tesla, its administration, and its supporters imagine that it’s so technologically superior, however but it could actually’t replace a easy web page and even be certain that there are not any evident errors? I’ve introduced up a few of these points earlier than they usually’ve stayed on the location for months, which brings me to final week. What was the most important information within the earnings report? The Model three manufacturing delay, the place administration says it won’t get to five,000 automobiles every week now till late in Q1 2018. So what can we presently see on Tesla’s foremost Model three web page:
(Source: Tesla Model three web site)
Was the web site director one of many current workers that had been fired? On the evening of the earnings report, I noticed some feedback on Twitter that the above manufacturing timeline graphic was taken down, however I nonetheless see it on a number of browsers, on my cellphone, and many others. Maybe it’ll come down by the point they really hit 5,000 per week, every time that seems to be.
If you had been like me that hoped Tesla’s 10-Q submitting would clear some issues up not coated within the earnings report or convention name, nicely, you is perhaps much more confused now. Asset disposals and stock write downs are hovering with no clear clarification, similar to the $30 million in one-time working bills and the Gigafactory spending numbers which have modified. While the corporate does not plan on a capital elevate, rates of interest are rising already and complete debt is hovering. That state of affairs will not enhance till Model three deliveries begin in quantity, however when that will probably be is dependent upon whether or not you hearken to administration or take a look at the corporate’s web site. Tesla shares held $300 on the finish of final week, however I can not see how they proceed to take action if the narrative does not change quickly. Things should not headed in the precise path.
Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours.
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