
Tesla Q3 Financial Results - danhak
https://ir.tesla.com/static-files/47313d21-3cac-4f69-9497-d161bce15da4
======
nyczomg
Sorry if this is slightly off topic, but it is amazing to me how differently
various publications are spinning the same basic facts. Some headline samples:

"Tesla shares soar after crushing third-quarter earnings" CNBC

"Tesla's Quarterly Profit Drops 54%" WSJ

"Tesla returns to profitability and tops Wall Street's third-quarter earnings"
Business Insider

"Tesla ekes out a profit as all eyes turn to its China Gigafactory" The Verge

I get that financials are prone to much speculation, interpretation, etc. But
it seems that the news is so agenda driven today that we're twisting facts to
fit some narrative rather than the other way around.

When the narratives being pushed at us by news organizations are so polarized
around concrete numbers being reported at regular intervals in a heavily
regulated manner, how can we hope to interpret more nuanced news
appropriately?

Sorry, rant over. This is exciting news for Tesla! Or maybe the beginning of
the end.

~~~
zaroth
And you know what? All the headlines are true! Knowing which takeaways
_matter_ is the hard part, and particularly with investing, if you _did_ know,
you’d be very rich.

I think the YoY EPS is the _least_ interesting and more erratic headline
personally.

They had one prior profitable quarter which happened to be Q3 2018. That was
under a full subsidy regime only selling the highest ASP Model 3s while there
was still higher volume X/S sales to boot.

All eyes are definitely on G3. Tesla spent 2019 improving process efficiency
and returning to profitability but have been seriously production limited the
last two quarters.

G3 production coming online for China, also by the way just in time to avoid a
steep rise in import tariffs, is hugely critical for Tesla, and China as a
long term EV market is absolutely massive. Getting China excited about a
locally built Tesla is super important, and G3 production of 3k units/wk by
the end of the year should be a massive boost to their bottom line, because
those should be higher _margin_ units even if they are somewhat lower ASP than
their global average.

It’s definitely not the beginning of the end for Tesla and I don’t think
anyone should come away from this particular report feeling more pessimistic
about TSLA than they were going into it.

~~~
gok
> They had one prior profitable quarter which happened to be Q3 2018

Both Q3 and Q4 2018 were profitable, and so was Q3 2016, and Q1 2013.

~~~
zaroth
Damn I should have known that. You hear so many deride Tesla over and over I
internalized the “they were profitable for one damn quarter” and took it as
fact.

    
    
      March,     2013 - $ 11.5M
      September, 2016 - $ 21.88M
      September, 2018 - $311M
      December,  2018 - $139M
      September, 2019 - $143M

~~~
mikorym
In terms of being profitable or not a quarter, can't you use accounting
techniques to twist this? I know that you can play off assets that still need
to be paid as income. Or is the meaning always precise?

For example, the first two don't say much; the third is much more significant
and probably difficult to fake.

Personally, I think the most important is whether they can follow their game
plan: make a lot of debt for car n, pay all off plus make a little; restart
for car n+1. Also, n+1 should sell more units than n.

~~~
navigatesol
> _can 't you use accounting techniques to twist this?_

Yes. Elon literally said, "Profits from here on out!" the last time they made
profits. Then, Tesla proceeeded to lose 700MM the next quarter.

~~~
zaroth
It's very interesting to read back over their 2018 Q4 report. They knew that
starting up international deliveries would have a significant impact on
recognizing revenue on all the vehicles they were able to build, whereas
selling locally they can count on selling them pretty much as they came off
the line;

> _While the number of Model 3 vehicles produced should increase sequentially
> in Q1, deliveries in North America during Q1 will be lower than the prior
> quarter as we start delivering cars in Europe and China for the first time.
> As a result of the start of Model 3 expansion into Europe and China,
> deliveries will be lower than production by about 10,000 units due to
> vehicle transit times to these markets._

What actually happened was that production rate fell by ~10,000 from 86.5k to
77.1k and they also had deliveries fall behind production by 15,000 instead of
their expected 10k;

> _In Q4 2018, Tesla produced a total of 86,555 vehicles, and delivered 90,700
> vehicles. In Q1 2019, Tesla produced 77,100 vehicles and delivered 63,000_.

I'd have to research the cause of the production drop, but that combined with
a larger than expected delivery lag (compared to the prior quarter where they
actually over-delivered vs. their production rate) is why they had such a
tremendous loss. On top of all that I'm pretty sure gross margins also fell,
and the S/X/3 mix became significantly more 3 dominant as the tax credit
dropped.

So while I would not dispute that there are tricks that can be pulled, mostly
in this case that would come down to the level of CapEx, which for Tesla is
now below their depreciation. That's a metric which typically shows a slowing
growth company, but in the case of Tesla could just be more reflective of how
wasteful their spending actually was in the past (e.g. trying to fully
automate production al la "alien dreadnought" and failing).

But in the case of Q4 2018 vs. Q1 2019 really what happened is they had
significant issues with production, deliveries, and margins all at once
driving down revenue well past anything they could correct by controlling
spending.

Not to carry on about it, but any company can _decide_ how much they want to
invest in future growth, and if they will raise money to finance that, or if
they will constrain their expenses based on their revenue and margins. That's
not financial engineering or an accounting trick, that's just basic risk
management and calibrating your spending based on your growth opportunity
versus your cost of capital.

What we've seen in 2019, I think, is a focus on aligning the company for
profit before the next push. I would not expect Tesla to have increasingly
large profits each quarter, because it would be strange for them to sit on an
increasing cash hoard ($5B+) when they have so many good ideas on how to spend
it. Namely, building more factories for Model 3 & Y, getting into battery cell
production, and whole new lines needed for the upcoming truck, and Semi
production.

~~~
navigatesol
You sounds fairly informed about the financials, and that's appreciated.
Still:

> _What we 've seen in 2019, I think, is a focus on aligning the company for
> profit before the next push._

They are not profitable. They achieved profitability _this quarter_ , but have
lost money every year for their entire existence. Is this different from
Q3'18?

> _because it would be strange for them to sit on an increasing cash hoard
> ($5B+)_

I'm not sure they have a "cash hoard" for any longer than the 10 minutes of
their quarterly report. Drawing on debt debt to increase cash balance doesn't
affect the balance sheet.

> _Namely, building more factories for Model 3 & Y_

Where did building more factories, and staffing them, show up in the financial
reports? How can all of the labour and capital expenses stay the same (or
fall) while this occurs? It's confusing that a company can essentially double
its productive capacity without it being seen in the numbers. Can you shed
light on that?

Despite what some of the conspiracy theorists on this site say, I may
be...anti-Tesla? But only because I think it's such a compelling story. I
don't short it (I don't short anything), and I don't talk about it outside of
this site (where I talk about it too much). I really don't get it: the
financials are a mess, Elon is, imho, a jerk, and yet...

------
zaroth
$143M GAAP / $342M Non-GAAP Net Income. $371M free cash flow.

GAAP Gross Margin 18.9%. That is before G3 comes online which will, I believe,
have an upward case for margins. That is the big news here today. And that is
really great news for Tesla.

Over $5.3B cash on hand. TSLA is in an amazing position going into Q4 and
2020.

Highly confident of exceeding 360k deliveries for 2019.

Just an amazing run up to the end of the quarter.

For added inspiration, check out a flyover video of G3 with the loading docks
starting to fill up:

[https://youtu.be/bI-My94Ig5k](https://youtu.be/bI-My94Ig5k)

Full Disclosure: Long TSLA. No plans to sell in the next 9 years. I told my
kids either the shares will pay for their college, or they may need some
scholarships.

~~~
threeseed
Not sure why people think long term Tesla is in an amazing position.

Their market share can only go down. All of the car companies have or are
releasing cars this year/next and are significantly more capitalised. Some of
these cars are superior to Tesla e.g. Porsche Taycan and their ability to
share platforms between brands helps to amortise costs.

As we've seen with Summon their FSD program does not look like coming out
anytime soon and their inability to be profitable means they can't invest in
it or even fundamentals like product refreshes.

~~~
Sohcahtoa82
> Some of these cars are superior to Tesla e.g. Porsche Taycan

Depends on your metrics. IMO, the Model 3 Performance is the superior car.
Half the price, quicker, longer range, and has access to the largest fast-
charging network in the country.

~~~
OnlineGladiator
I think the hope is the Porsche Taycan will be a legitimate track car. Teslas
are still known to overheat, and I have yet to find a single example of
someone tracking a Tesla for even 5 laps in a row (I am aware of the Model 3
Track mode, but either nobody is using it or it doesn't work).

EDIT: Found this article:

[https://insideevs.com/news/367599/video-tesla-
model-3-track-...](https://insideevs.com/news/367599/video-tesla-
model-3-track-mode-burns-range/)

So it is doing significantly better than what I originally stated, although
apparently you're only going to get about 30 minutes of driving before you
have to recharge. That takes a few minutes with gasoline, and a few hours with
electric (at 80% you won't even last the 30 minutes).

There are some interesting comments on that article, someone calculates the
car will only last about 15 minutes on a really demanding track.

~~~
Sohcahtoa82
I will definitely concede that Tesla's cooling is insufficient for track use.

Track mode pre-cools the batteries when you enable it (among other things),
which allows you to go for longer, but it only delays the inevitable.

I'm interested to see if the Model S Plaid edition and Roadster 2.0 have
better cooling to make them better on a track.

~~~
OnlineGladiator
I think it's just _really_ hard to keep their batteries where they need to be.
In order to get better performance/range, Tesla chose NCA batteries.

[https://batteryuniversity.com/learn/article/types_of_lithium...](https://batteryuniversity.com/learn/article/types_of_lithium_ion)

The problem with NCA is it is more volatile, and if it overheats it literally
explodes violently. I am not saying this is insurmountable, but looking at the
progress Tesla is making versus the reality of how long you can drive the cars
hard, I think Teslas might never be great track vehicles.

Although every EV car will have this problem to some extent, so it's not
limited to Tesla. If Porsche can't figure out how to cool an EV well, then
it's a _long_ way away because they are famous for their engine cooling
technology.

------
hizanberg
Normally I invest in companies who I believe are undervalued and have solid
fundamentals/profitability and are well positioned for future growth.

TSLA is one of my few "emotional investments" of companies I've invested in
because I want it to succeed. IMO its share price is highly speculatively
priced, but I expect they'll eventually be able to maintain profitability to
justify it as they're best positioned to benefit from an EV (+ renewable
energy) future.

I'm long TSLA and didn't expect them to achieve profitability before Shanghai
Gigafactory (+ Model Y) is in full production, so this earnings release was a
welcomed surprise. Happy to see them continue to grow and further invest in
the future.

~~~
synaesthesisx
I feel the same way - as someone who has been invested in $TSLA since it was
$34 my risk is now effectively zero. I look forward to watching the company
continue to succeed beyond imagination (although I have a serious disdain for
FUD-spreading shorts).

~~~
xkjkls
How have the shorts succeed beyond your imagination. If you look at their EPS
estimates over the last year for this quarter, they've gone from $2 a share to
-$0.40, sure they beat the estimate of -$0.40, but with after hours gains the
stock has gone from $380 -> $300 with them posting EPS of 30-40% lower.

------
thinkingkong
The Shanghai Gigafactory going from breaking ground to production ready in 10
months is staggering. Has anything like that been accomplished in NA in the
last 10 years?

~~~
Ancalagon
maybe not but how many people in china were displaced and what was the human
cost and environmental cost?

~~~
manigandham
Human cost? As in deaths?

~~~
CydeWeys
It wouldn't be that unusual for there to be deaths during a big construction
project, especially in a place lacking good safety protections. So it is a
reasonable question to ask.

------
spectrum1234
"Margin was impacted in part due to fundamental improvements in our operating
efficiency, including higher fixed cost absorption, reductions in
manufacturing and material costs and continued improvements in vehicle quality
and in part due to Smart Summon-related deferred revenue recognition, FX and
other non-recurring items."

How did Tesla cut fixed and variable costs so much? I want more details than
this. This is extremely impressive!

And what is an example "higher fixed cost absorption" in this context? Seems
like most of the fixed costs here would be the already established factory and
other fixed costs would be minimal.

Its also surprising there was such a big opportunity for variable cost savings
over a short time period of 1 quarter. Presumably this is from less
manufacturing waste, higher quality output, and slightly higher production
rates.

Tesla is certainly a rare company that can find ways to increase margin this
much, but its extremely impressive to see this happen over 1 quarter instead
of 1-2 years as I was expecting.

------
danhak
Highlights:

$143M GAAP Net Income (vs $74M loss expected)

Trial production started at Shanghai Gigafactory

Model Y production moved forward to Summer 2020

~~~
dmix
Is Model Y replacing Model X?

~~~
soperj
No, model Y is built on the same frame as model x. It'll be a suv.

Sorry. meant model 3.

~~~
sedgjh23
*Same frame as model 3

~~~
woofyman
Modern cars don’t have frames. They are unibody.

------
jumbopapa
I'm not great at reading financial results, but $TSLA is up ~17% after hours,
so I'm assuming they did well.

~~~
slg
Just a reminder that stocks move in relation to expectations and not relative
to results. Bad results that are not as bad as expected results in the stock
going up. Likewise good results that are not as good as expected results in
the stock going down.

So the takeaway from the after hours trading is not necessarily these results
are good in a vacuum, it is that people were surprised that the results were
as good (or perhaps not as bad) as they are.

~~~
tempsy
Yes these results were stellar and the movement reflect that

------
m0zg
I wish them all the success in the world in the face of increased competition.
They basically started the "no compromise electric car" market, in the face of
an army of naysayers, and the last few years have been extremely rough on both
the company and Musk personally. IMO they pretty much deserve to win.

Disclosure: I hold no TSLA, and don't own any of their cars. I just like
dogged persistence in the face of impossible odds.

~~~
Diederich
> I just like dogged persistence in the face of impossible odds.

Amen.

------
csours
I'd like to know what Tesla's debt load is, minus any debt related to vehicle
leasing. Basically I wonder how much they owe in long term loans and bonds.

I think it's on page 24, but I don't know how to read it.

Ycharts says 13B -
[https://ycharts.com/companies/TSLA/total_long_term_debt](https://ycharts.com/companies/TSLA/total_long_term_debt)

~~~
missedthecue
[https://ir.tesla.com/static-
files/65db1b3c-3edd-44b0-86ec-71...](https://ir.tesla.com/static-
files/65db1b3c-3edd-44b0-86ec-715a7ddb9338)

As of the end of June, 2019, they had $12.159 Billion in long term debt, not
including vehicle leasing.

You can view the debt individually with interest rates and maturity date on
page 23 of my attached document

~~~
csours
Ok from there they have about 1 billion in debt related to leased vehicles and
a little over 1 billion in debt related to customer's solar installation
financing.

------
throwaway66920
This is great news. There’s few companies in the world I want to do well
specifically. Tesla’s gotta be at the top of the list.

------
jeffshek
After hours price : Tesla Stock is up 16.70%

\+ Adjust earnings per share of $1.86 vs. expected losses of 42 cents per
share (major reason)

------
mrnobody_67
Tesla delivered 1,800 more cars in Q3 versus Q2, and somehow delivered $551MM
more net income.

~~~
navigatesol
With a lower margin mix of models.

------
LeftHandPath
I remember doing a due-diligence on Tesla during the Oil Crisis of 2015. The
stock was at 195 or so, the company hadn't released anything other than high-
end sedans, and the cars were still sold in stores.

If you went to their website, you saw that they were planning to have a
$35,000 vehicle for sale by 2018, with rapid charging stations set up across
the country (forming a corridor for coast-to-coast travel), where Tesla owners
would be able to charge for free. And furthermore, the leadership - Musk - had
shown his worth when he put his last dimes into PayPal just a few years
earlier.

I said it was a good company to go long on for a three year timeline. (They
didn't listen, I was only 17 and had never invested in my life).

It might be time to give them another examination.

~~~
rainyMammoth
And it's good they didn't invest on your advice to go long on TSLA. If you
invested into The diversified SP500 instead with the same timeline (2015 to
today) it would give you a slightly similar or even better return than TSLA
that went from 195 to 295 ( and that is IF the current price holds until
tomorrow which will most probably not).

Never forget opportunity cost while investing!

~~~
paulpauper
but the person who buys telsa instead of an index fund is likely anticipating
increase volatility and has higher risk tolerance

~~~
gimmeThaBeet
They can anticipate higher volatility, but that doesn't mean they're being
compensated for it.

Yeah we have the benefit of hindsight, but that's what we're talking about. If
you're just evaluating past performance starting from any point in 2015, Tesla
generated average returns, was pretty uncorrelated (which is great), and was
way more volatile than the S&P. That's not thrilling.

------
aazaa
Tesla as a long term investment going forward largely depends on whether you
view the electric car as a disruptive innovation (breaks established car
companies' business models) or sustaining innovation (does not break
established car companies' business models).

Established players tend to have the upper hand for sustaining innovation.
Sustaining innovation can start at the top of a market and work down.

Disruptive innovation favors the upstart. However, disruptive innovation
starts at the bottom of a market and moves up.

The more I see what Tesla and other car companies are doing with EVs, the more
it seems that the electric car is actually a sustaining innovation.

~~~
kentlyons
Tesla is probably a new market disruption. If so electric is a bit of a red
herring. There is some evidence of this with the trade in data. The analogy is
apple taking out Nokia Motorola and Blackberry with a phone that wasn't good
by the standards of the day since it was playing a different game.

~~~
xkjkls
Why? Effectively assembling vehicles at margin seems to be the major key to
the auto industry EV or ICE. The existing competitors still have greater skill
at that.

------
RivieraKid
They recognized some FSD revenue.

~~~
omgwtfbyobbq
Where do you see that? I see this line about them expecting to do that going
forward, but nothing about them recognizing revenue in Q3.

>We also expect to gradually release nearly $500M of accumulated deferred
revenue tied to Autopilot and Full Self Driving features.

~~~
RivieraKid
> Margin was impacted [...] in part due to Smart Summon-related deferred
> revenue recognition

~~~
steelframe
> Margin was impacted [...] in part due to Smart Summon-related deferred
> revenue recognition

In case anybody has been watching the Tesla Smart Summon demolition derby
videos on YouTube and is wondering what on earth Tesla was thinking when they
pushed the feature out in its current state.

~~~
DanCarvajal
They were thinking they could book some deferred revenue to look more
profitable than they really are.

------
RivieraKid
From Twitter: Sequential revenue down $43MM. Sequential net income up $551MM.
Makes sense.

------
pcurve
20% jump after market. I'm really confused. Is this short covering?

I've read through the financial statement. They're fine, but I'm scratching my
head over why it warrants 20% jump? Anyone have a good explanation?

~~~
hizanberg
As always, it's because they performed much better than Wall St expected, who
expected another operating loss.

TSLA is particularly volatile because they run the risk (and many analysts
believe) that they will run out of cash before they can achieve profitability,
so their share price have carried a lot of risk that have hampered its price
from its $400's highs. This surprising profit effectively significantly
weakens the risk giving investors more confidence they'll continue to be
around for the long term to dominate the EV market.

------
growlist
The size of that (giga)factory. My god!

~~~
adventured
And all those TSLA-short clown types on Twitter et al. and their endless posts
showing the empty lot in China, mocking Tesla about how they'd never actually
build a factory there. Reminds me of all the statements about how Tesla could
never produce the Model 3 at scale. I have no position in TSLA, but I
thoroughly enjoy watching those types of people get repeatedly humiliated by
Tesla.

------
wmhorne
Why can't Tesla divorce their interest in producing electric vehicles from
their agenda in producing autonomous ones? It seems there is so much call for
the former and so little for the latter. I wonder why they've felt the need to
fuse the two.

I, for one, wish there was an option for a cheaper Tesla without all the self-
driving capabilities, much of which is useless now and will, I expect, become
obsolete before any actual self-driving is commonplace.

~~~
djrogers
Not sure where you're shopping, but on tesla.com I can order any Tesla without
Autopilot for $6k less than one with it.

------
hef19898
Positive things are an improved cash flow and lower operational costs. Might
be just in time for Tesla before the other car makers launch their models. It
will be interesting to see how the race, building mass production capabilities
vs. developing EV turns out.

Also increased deliveries is a good thing. Guess I have to read the whole
thing tomorrow in detail.

------
Robotbeat
One of the biggest pieces of news from the earnings call is that they're
planning on supplying batteries/powertrains to other carmakers.

That's a great idea for several reasons:

1) Of all parts of the car (ignoring autonomy-related stuff), Tesla is best at
the battery and powertrain. They have a sizable efficiency advantage compared
to almost anyone else. By supplying this key part, they should be able to
maximize the value of this advantage. Other carmakers are probably better at
super high luxury interiors or low cost interiors (although Tesla has
interesting ideas and a nice aesthetic--which is subjective and thus could
limit their demand, which this move avoids).

2) It indirectly gives them access to more EV credits. Tesla's credits are all
but expired in the US. They will be all gone after Q4. So they'd be at a huge
disadvantage to a company like VW who owns a bunch of "manufacturers" which
each have access to their own set of EV credits but could use a common
powertrain platform. By providing powertrains to other car companies, they can
indirectly pull kind of the same trick.

3) It means they can make them compatible with the Supercharger network, thus
spreading the cost of developing and expanding that network over more
companies and giving them an economy of scale. At a large enough scale and
serving other carmakers, they could actually make some money this way.

4) It allows them to focus on automating this aspect of electric car
manufacturing. Their sizable R&D budget for powertrain can now access tens of
millions of vehicles per year instead of just a few hundred thousand vehicles.
It also maximizes the benefit of streamlining cell production and bringing it
in-house (although I think it's possible Tesla may keep the higher performance
cells for their own vehicles and use Panasonic or LG Chem cells for 3rd party
vehicles, like they've done with Powerwall and are doing with Shanghai Model
3). Fully automating production of the powertrain/battery would become far
more plausible at two orders of magnitude greater scale.

5) Allows them to make the biggest impact on climate emissions as fast as
possible. Scaling up carmaking is hard. Focusing on the battery and powertrain
is something they're already good at and can significantly help reduce global
emissions.

6) Allows them to decarbonize their service vehicles and other logistics
vehicles (perhaps even mining equipment), making a better argument about how
their embodied emissions are actually very low (and falling).

7) It also helps other carmakers which helps Tesla curry social and political
support (instead of the "Tesla vs the World" status they currently seem to
have).

They provided powertrains/batteries to other companies in the past, like the
Smart car or Toyota's electric Rav4. Back when it looked like Tesla might be
in financial trouble, I considered this strategy as a significant backstop in
case things went south. But deploying it now is probably an even better idea,
now that they've scaled up to the point that they've used up all their EV
credits.

~~~
r00fus
Could this be like the time Apple switched to Intel and gave up the animosity
against The rest of the computing industry?

------
Amygaz
What actually amazes me the most is the very slick slide layout for an earning
reports. I'd read more of those if they were like that.

------
michannne
A ton of people retired early today. Good for them, I lost 40 bucks so
fortunately I'm not quite in the position to be angry.

------
gok
Interesting that they missed on revenue but beat on profit. Fewer but more
profitable vehicles than expected?

~~~
propercoil
More vehicles at a lesser price (Model 3).

------
propercoil
Expected EPS: -$1.12 Reported EPS: $1.91

That's all we need to know. It's time for Tesla to move into more countries.

------
sidcool
Very very impressive. If I had money I would by Tesla shares.

~~~
kmlx
i'm waiting 'till Musk goes on another interview and the stock tanks.

------
p1esk
I wish I bought some TSLA a few months ago when it was $180! :)

~~~
cronix
I bet ARK is really pissed they sold 150,000 shares ($39M) yesterday.
[https://www.businessinsider.com/tesla-investor-ark-trims-
sta...](https://www.businessinsider.com/tesla-investor-ark-trims-stake-ahead-
of-q3-earnings-report-2019-10)

~~~
ProAm
Meh: "Shares of Tesla are down 23% since the beginning of the year."

~~~
wesammikhail
but they are up 1130% since IPO. I personally dont understand why people use
psychological lines such as month/quarter/year or 25/50/100 when none of that
really matters. A business is a continuous process and should be looked at as
such.

~~~
kosievdmerwe
Yes, but you could also have invested your money elsewhere and continued to
see growth.

Except for the complexity involving taxes and fees, if your money sits in
Tesla shares for a long time and the stock stays flat, then you've lost money.
Both in terms of opportunity cost and through inflation.

And this is irrespective of when you bought them.

~~~
paulpauper
you can mitigate this buy selling long dated put options on tesla, which hare
very , very expensive and can yield a big return even if Tesla does nothing

