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Wednesday, September 5, at the end of the day, Insideevs has published its monthly sales forecast still eagerly awaited, in this case for the month of August. The Tesla model number 3 (TSLA) was 17,800: monthly plug-in sales evaluation form.
If we add the July estimate for the 3 – 14,250 model – the next quarter is 32,050 for the United States. Although we do not yet have a good estimate for Canada – the only other region in which Model 3 is sold after the epic push of the month of June. Let's add 1,000 units for the entire 3Q, for good measure.
That brings us about 33,000 without adding the month of September to the United States. One day less than the month of August, if Tesla maintains the pace of Model 3 sales from August to September, it will finish the quarter with 50,000 Model 3 units sold.
How does this relate to Tesla's own advice on 3Qs? Let's look at Tesla's August 1st quarterly report here. He indicated that the production of the 3rd model 3 would be 50,000 to 55,000 units of the Model 3, and that the deliveries (ie sales) would exceed this number of production.
So what does it mean? Well, "outpace" does not mean an exact number, but if the production is between 50,000 and 55,000, we can reasonably assume that sales forecasts are around 55,000. With deliveries of 50,000 units, this would represent a shortfall of 10%.
So, in other words, August's Insideev estimate of 17,800 implies, with a reasonable extrapolation from August to September, that Tesla will be around 10% less than its implied 3Q model. It may be better that some of the most bearish analysts thought this was going to happen, but that would still be a shortfall for the management of the 3Q.
Admittedly, there is a reasonable probability that the month of September will not be as linear as in August, as one might think in a "neat" world. It could be higher or lower. However, the midpoint of these scenarios now indicates a 10% sales deficit for Model 3. But could it turn out to be 0% (right on the money) or a 20% deficit? Of course, all these scenarios are possible.
Now, how about talking about 5,000 models 3 units a week, or 6,000 a week? Let's take the Insideevs numbers and divide them by day and by week:
|
Tesla 3Q |
units |
days |
per day |
per week |
|
July |
14250 |
31 |
460 |
3218 |
|
August |
17800 |
31 |
574 |
4019 |
As you can see in the table above, with 3,218 units a week in July and 4,019 units a week in August, Tesla is nowhere near 5,000 a week, let alone 6,000. Moody about it? Will this contribute to the degradation of Moody's?
Of course, the first line is just the beginning of the analysis of the investment record of Model 3. What matters in the end is, among other things, net margins. No gross margins – but sharp margins.
Tesla notably excludes the significant costs of its cost price (COGS), thus inflating its calculation of gross margin – even if it makes no difference compared to the net margin, ie the net result. For example, all sales costs are taken into account, such as stores and other sales infrastructures. And where are the expenses of Supercharger going? Repair costs?
It has already been said that in the case of Tesla, the calculation of its gross margin was irrelevant because of the allocation of COGS and overhead costs. All that matters is the net margin.
I have no doubt that if you exclude ZEV credits and other accounting stuff, Tesla will report a loss for 3Q. However, ZEV credits are essentially impossible to calculate for a foreigner and Tesla may have saved some of the previous quarters. For example, the company recognized zero ZEV credit in the second quarter.
Over the past two years, ZEV credits averaged more than $ 75 million per quarter. If this figure were to remain the same in 2018 and Tesla had only recorded 2Q for the 3Q, then it could recognize $ 150 million in the 3rd quarter. However, this could be a much larger number. I would not be surprised to see that number double to $ 300 million. If so, it would be the factor that would cause Tesla to break even for the quarter.
ZEV Credit Lesson: Public subsidies are important because ZEV credits are a purely government creation, forcing some builders to pay Tesla and other electric car producers. The net result of Tesla is and will be very different depending on the ZEV credit result. It is so difficult to have a firm vision of what this number will be. Only Tesla knows it. This is, in my opinion, the only possible reason why the company is orienting its profitability towards the third quarter.
What we do not know either, is how far Wall Street will view ZEV credits as a "sustainable positive". Are ZEV credits simply part of the long-term business model, or something that Wall Street will consider temporary and endangered in the coming quarters? This will be an important part of the stock's impact – up or down – when Tesla will wonder if 3Q was profitable or not and why.
Here's what's clear: if you're a short Tesla stock, in my opinion the only thing you should be afraid of is ZEV credits, as they probably make the difference between Tesla's ability to break even or not. . If Wall Street views ZEV credits as an integral and enduring part of Tesla's economy, a large number of ZEVs would mean that the stock has a much higher probability of increasing when we learn the results of 3Q.
And, conversely, if you are a long stock of Tesla, ZEV credits are the only reason you will be invested at this point. If ZEV credits are disappointing, or if ZEV credits are considered a temporary boost on Wall Street, Tesla is much more likely to post a loss in the 3rd quarter and the stock market reaction is negative.
Anyone who is able to calculate Tesla's ZEV credits accurately and has a good idea of how Wall Street will see the ZEV credit contribution (especially if it's large, say more than $ 150 to $ 200 million), will be excellent position to play October. If I end up covering all or part of my short position before the end of September, it's probably because I'm too scared of a very large ZEV credit number, which causes the company to post a result. Net profitability.
Disclosure: I am / we are short TSLA.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.
Additional disclosure: At the time of submission of this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent displays, organized by most major car manufacturers.
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