Tesla: Customer Deposit Number Doesn't Tell Entire Story

| About: Tesla Motors (TSLA)

Summary

Management did not update Model 3 reservation number.

Many countries had to place higher deposit amount.

Don't forget vehicles in transit and trade-ins.

In my discussion of Tesla Motors' (NASDAQ:TSLA) second-quarter results, I noted how management failed to update investors on the conference call as to how many Model 3 reservations were on hand. Given the questions surrounding this upcoming vehicle and its importance to Tesla's future, I decided to do some digging into the issue and found some surprising results.

First, here is what we know. Tesla's most recent update in the middle of May was for 373,000 reservations for the Model 3. At the end of 2015, the company reported $283.370 million in customer deposits. That number rose to $391.363 million at the end of Q1, and the end of Q2 figure was $679.834 million. A customer deposit is not just the amount placed down when reserving a vehicle, say $1,000 for a Model 3 in the US or higher for other vehicles. Here are the official statements on customer filings, one from the 2015 10-K filing and one from the 2016 first-quarter 10-Q filing:

10-K: We collect deposits from customers at the time they place an order for a vehicle and, in some locations, at certain additional milestones up to the point of delivery. Customer deposit amounts and timing vary depending on the vehicle model and country of delivery.

10-Q: Customer deposits include cash payments from customers at the time they place an order for a vehicle and additional payments up to the point of delivery including the fair value of customer trade-in vehicles that are applicable toward a new vehicle purchase. Customer deposit amounts and timing vary depending on the vehicle model and country of delivery.

Tesla launched a new version of the Model S during the second quarter, so there were probably some customers that traded in their older models. To show an example, 100 trade-in vehicles with an average fair value of $50,000 would equal $5 million in customer deposits if customers were waiting for their new vehicle at the end of Q2. The number could be even higher, because as Tesla pointed out in its delivery announcement, 5,150 vehicles were in transit at the end of Q2, up more than 2,500 from the end of Q1.

Don't forget that those extra 2,500 vehicles would likely represent at least $12.5 million in extra deposits on the balance sheet at $5,000 per deposit (more if there were signature versions involved). In fact, due to high import taxes, Tech Times pointed out that Chinese customers ordering a Model X had to plop down over $15,000 for Model X reservations, more than three times what a US consumer would put down. That could inflate the customer deposit number even more. Extra vehicles in transit could also hike the amount of money received during certain milestones as detailed in the quote above.

Another key point is that you can't just equate each Model 3 reservation to $1,000. In the United States, that is the case, but Tesla sells its vehicles in a number of countries. Just as vehicle prices vary from country to country, Model 3 reservation deposits do as well, as seen in the table below:

(Source: Electrek article, here)

In most of those countries, the currency conversion at the end of Q2 put deposits in a range of $1,100 to $1,500 US. That can really throw off the math, especially when you are talking about a deposit price that's 50% higher when translated into US. So 10,000 deposits in a more expensive country could equal $15 million on the balance sheet, whereas it would equal $10 million in the US. If say 200,000 deposits were at an average of $1,250, that would put an extra $50 million in the customer deposit line on the balance sheet (as compared to 200,000 at $1,000).

So even though Tesla's customer deposit balance is at a new high, thanks to Model 3 reservations, that doesn't necessarily mean M3 reservations have risen since the last update (or fallen for that matter). There are multiple factors that go into the calculation, including where the vehicle was reserved, the larger number of vehicles in transit at the quarter's end, and potential trade in values as Tesla refreshed the Model S. Hopefully, Tesla will update the reservation number in the 10-Q filing, but failing to discuss it on the conference call seems to lead many towards the argument that the number is declining.

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