To prepare for today's Tesla (TSLA) third quarter release we have modeled management's guidance given in the last shareholders' letter, along with the 3Q15 deliveries disclosed in early October. We then compared the results against consensus estimates. In this post we are going to discuss some of the interesting things we found with this analysis.
Before we start it is important to note that management does not disclose every item on the Income Statement, and for the items where guidance is given, management typically discloses a range, so we had to make a few assumptions. The following is a break-down of management's guidance and the assumptions we made in our model:
1) Deliveries: Management already disclosed that total vehicle deliveries for the third quarter were 11,580. We are not sure of the breakdown between Model S and X, so in our model we set Model X deliveries to 50 and assumed Model S made up the rest.
2) Credits: Regulatory credits are expected to be $45M including $30M of Zero Emission Vehicle Credits.
3) Profitability: Management did not say exactly what the automotive gross margin would be, but did say it would be slightly below the second quarter. They also guided service and other revenue gross margin to be comparable to the second quarter. We set our Model S gross margin to 22.9% (excluding ZEV credits), which is 100 basis points below last quarter.
4) Opex: For operating expenses management guided to an increase of 5 to 10% quarter-over-quarter. We modeled opex to increase by 5.4% which represents the low end of that range.
5) Other Items: We also had to make assumptions for Interest Income, Other Income, and provisions for taxes, which we kept in-line with historic averages using ratio analysis.
6) Average Selling Price: Management gave guidance on the average selling price per vehicle which they estimated to decline by 100bps; However, in order to get back to the consensus revenue estimate of $1.26B we had to increase this estimate.
Conclusion: Management's guidance is generally in-line with consensus estimates heading into today's release, with a bit of room for variability on the average vehicle selling price.
If you would like to see our full demonstration of this analysis as well as some scenario analysis on 2016 production rates and cash flow estimates please click for our YouTube video: https://www.youtube.com/watch?v=dm6CGIxJe3U