DISCLAIMER: An earlier version of this article made two major mistakes by understating US revenue in Q3 and not taking into account powertrain sales. I stand corrected and thank commenters for pointing this out. I apologise for the mistakes and update the article now.
Tesla Motors (NASDAQ:TSLA) has reported third-quarter GAAP revenue at $852 million. While the company didn't break down the numbers by continent (as it had done since deliveries outside North America started), it is possible to estimate how much of this revenue was contributed by the Old Continent. The disparity between reported revenue and deliveries is curious and merits an explanation from the company.
We know that the vast majority of Tesla's North America revenue comes from the US, and the same can be said of China with respect to Asia. We will call these non-China, non-US Asian and North American countries "Other". Thus, by taking Tesla's total revenues and subtracting China and the US, we will be left with revenue from Europe and Other (which is mostly Canada).
In the two previous quarters Tesla broke out revenue both by continent and by country, in the case of China, the US and Norway. Thus we know that Other revenue was $17 million in Q1 (see page 22) and $21 million in Q2 (see page 20); in other words, about 200 Model S are sold per quarter in America's northern neighbour.
So from $852 million in global revenue we'll subtract:
- $382 million from the US
- $201 million from China
- $45 million from Norway
- $20 million from Other
And we're left with $204 million from Europe excluding Norway, or EEN for short. All figures are GAAP (see page 20).
There is a problem with this number: only 1,061 Model S were registered last quarter in the region. To obtain $204 million from these cars, Tesla would need an average selling price of $192,000!
I have compiled Model S registrations in every single European country in this Excel file, along with the relevant revenue figures for comparison. I obtained the figures from EV Sales, but this site in turn got them from each country's government agencies. They match what has been reported at other sites, like Best Selling Cars Blog. They are not estimates. They're actual registrations.
The most expensive cars are delivered first, and lease accounting hits GAAP revenue. Since leasing availability has expanded and more cars are being bought this way, we would expect Tesla's ASP to decline over time, at least for the first year after Model S sales start in a country.
But in 2014 we see a slight increase in ASP at first, another increase in the second quarter, and a jump last quarter. So has Tesla started selling lots of cars in Other? The Model S launched in Japan in September, and no doubt some cars have been delivered there, but look at this import list and try to find the Model S.
Perhaps Canadians are buying a lot more Model S? Not really, they bought 267 last quarter, at a far lower ASP than in Europe and marginally up from 236 the quarter before. So increase my Other estimate to $30 million, if you want to, but we still have about $100 million in EEN revenue unaccounted for.
What about powertrain revenue?
It was $8.2 million 2013Q3, $13.3 million in in 2013Q4, $16.3 million in 2014Q1, $24.4 million in 2014Q2, and $30.9 million in 2014Q3.
Even if we assume that $0 powertrain revenue went to Europe in the first and second quarters, while absolutely all went to that continent in the third quarter, we still have $172.1 million in EEN revenue - from 1,061 cars. This would be an ASP of $162,000, compared to $138,000 in the third quarter and $128,000 in the first. Even assuming Other revenue is $40 million rather than $20 million leaves us with $152 million from said number of cars.
And again, why any increase at all? With more cars being leased and the delivery mix trending cheaper, and with Norway ASP at only $105,000 or so, does it make sense for EEN ASP to go from $128,000 to over $140,000?
Please don't say they're in transit
The "cars in transit" explanation holds no water for several reasons:
- A car is not sold until it's delivered. For Tesla to book revenue from cars in a ship or warehouse would be a massive irregularity.
- Transits and delays cancel out. Yes, there are cars ordered and built in Q3 that are delivered (thus sold) and registered in Q4. But at the same time, many cars ordered and built in Q2 were sold in Q3. If the number of deliveries is growing, yes, we will underestimate the present quarter because deliveries "lost" to the next quarter will outnumber those "gained" from the previous one. However...
- October deliveries total a whopping hundred and twenty seven - including Norway! So it doesn't look like the third quarter ended with a fleet of ships loaded with Model S destination Europe. In fact, barring a miracle Tesla will face a decline in Europe deliveries next quarter - both on quarter and on year.
Missing cars, missing cash
The other puzzle in Tesla's earnings is its cash flow. Whereas net income last quarter income was -$75 million, free cash flow was -$320 million. If you're wondering, this is the biggest gap between these two measures since the company was funded - all in all this year FCF is $400 million below net income. See all the numbers here, in the second tab (FCF minus net income).
Of course not all cash outflows go into the income statement; a company buying up or building assets will present a negative cash flow without an accounting loss. And indeed it seems Tesla has been on a shopping/construction spree, because CAPEX last quarter was an eye-popping $284 million - more than in all of 2013!
Before you dismiss it as a fluke, or as necessary to offset under-investment earlier in the year, look at the numbers for Q1 and Q2. So far in 2014 Tesla's expenditures on property and equipment are running at more than triple the level of 2013 - even though Model S production through the first three quarters is only about 30% higher than in the year-ago period.
The Gigafactory takes a lot of money, you say? No: see page 12 of the third-quarter 10Q. Spending on the Gigafactory totals $18.8 million so far (so third-quarter expenses are lower). And the Lathrop facility will cost $19.2 million, of which only a portion was spent last quarter.
Where is the money going? Tesla won't say. The 10Q contains virtually no explanation on what has caused this unprecedented investment drive.
So on the one hand we have some a significant jump in ASP in Europe, and on the other hand a massive cash outflow going, um, to some investments - we don't know which.
If only the company stood up and said where the cars and the cash are.
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