Supercharger Consumption Numbers Confirm Tesla Under-Budgets

| About: Tesla, Inc. (TSLA)
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Summary

Yearly Supercharger use among Tesla cars now exceeds 1,000kWh.

This use is both much higher than before and too high for the company's reserves.

It's only the latest development in a history of obfuscation and lowballing from the company.

Background

Generally accepted accounting principles dictate that if you sell a product with the promise or commitment to provide a related service in the future, the cost of providing such service is considered a liability and should be budgeted for the moment the product is sold. The most common example is warranties, which are nothing but a commitment to provide repair or replacement should anything go wrong with the original product within a specific time frame.

Thus, whenever Samsung (OTC:SSNLF) sells you a phone, or Ford (NYSE:F) sells you a pickup, these companies don't account for the full revenue of these products at the moment of purchase. Rather, a part of the revenue is deferred (i.e. reserved for the future). Let's say you buy a phone with a two-year warranty for $200. Let's also imagine the phone maker has estimated the average phone will incur $20 worth of warranty expenses. If so, it should recognize only $180 as revenue upon sale, and defer the rest. This means that $20 of revenue is recognized over the following eight quarters.

Tesla Motors (NASDAQ:TSLA) offers a warranty, of course, but it has also made a different kind of commitment: every person who purchases a Model S or Model X gains the right to access and use the Supercharger network forever, meaning until the car breaks down. In fact, even subsequent owners of the car retain this right (i.e. the service is tied to the car, not the owner).

Tesla started disclosing revenue deferred for Superchargers in Q2 2013. In December 2014, I noted that dividing this amount by the number of cars sold implied less than $500 per car were allocated to the service. This number seemed unbelievably low, but it has remained very stable over time: increases in the total amount of revenue deferred have been matched by increases in the installed base of Supercharging-enabled vehicles. In other words: the Supercharging service only makes Tesla's gross margin (per car) $500 lower than it would otherwise be.

Shortly after my article, the SEC contacted Tesla to ask about Supercharger costs (mostly). The company responded in January 2015 with data that had never been disclosed and that, for the most part, still remains undisclosed except for this letter. Unfortunately, SEC correspondence is uploaded only to the agency's EDGAR website, not to the Investor Relations section in Tesla's site. This meant the letter lay there, seen by essentially no one until very recently.

The company did reveal in the 2014 Q4 report (published in February 2015) that the "performance period" it used when estimating Supercharger costs was eight years, a fact first stated in the letter to the SEC the month before. In other words: Tesla expects the average Model S to use Superchargers for only eight years.

But why vehicles selling for $100,000 are only expected to use Superchargers eight years has never been explained. It must be noted that Tesla offers a resale value guarantee on 50% of its cars' base price (43% on options - about 48% of total price) after three years, and has given no indication that second-hand prices have fallen below this mark (the program kicks in this quarter, because it was first offered in April 2013). In practice, if the Model S holds the value indicated by the RVG but is no longer on the road after eight years, it would mean the car is losing 50% of its value in three years and the other 50% in the following five.

Surely anyone who's owned an automobile will know this "depreciation curve" is absurd - depreciation is far more front-loaded. A car which loses 30% of its value the first year, or 60% in the first three years, may still be on the road at year 20. As a matter of fact, the average car on US roads is now 11.5 years old.

The company's filings also stated that this $500 was classified as cost of goods sold, or COGS, as seems logical for a feature inherent to every car sold. But the company statements implied that other Supercharging costs were instead classified as selling, general and administrative (SG&A) expenses. While not quantifying these additional Supercharger costs, since Q4 2014 Tesla has added a line clarifying they are "immaterial for all periods presented" - without discussing whether they are expected to become material in the future.

In that same filing, i.e. the first after the SEC letter, the company also started to disclose the net book value of the Supercharger network. I have noted that the implied cost per station is about twice what the company repeatedly stated in 2013.

A few weeks ago, thanks to a fellow Seeking Alpha contributor I learned of the letter and concluded that:

  • The Superchargers' operating cost per kWh in 2013 was about 80 cents
  • Their capital (i.e. depreciation or amortization) cost was 20-30 cents per kWh in all periods analyzed
  • Their capital cost was unlikely to dip below 20c/kWh, due to low utilization
  • In turn this implied a total (capital + operational) cost per kWh almost certainly above 30c/kWh
  • All of the above strongly suggests the company isn't budgeting enough for the Supercharging service, even if it only intends to pay for it for eight years

As we have seen, the company had already disclosed that some Supercharger costs are classified as SG&A rather than COGS, and therefore aren't counted as deferred revenue (and don't subtract from gross margin). But the letter revealed for the first time that sixty percent of Supercharging costs were in fact classified as SG&A. Well, at least that's how it worked in 2013 - the company's method for classifying costs is essentially arbitrary so there is no way to know what will be the percentage in future years.

Finally, my last article noted that, since early-to-mid 2015, Tesla has essentially stopped providing data on Supercharger usage. The data had previously been provided in a somewhat haphazard way, by means of tweets and blog posts rather than 10-Qs, but it was data nonetheless. The company boasted when the network consumed more than 1GWh in June 2014 and 2GWh in October of the same year. There were also dashboards or screens in the Palo Alto and Amsterdam service centers, providing some detail both into global usage and into the busiest stations. These were turned off in early 2015, and so I thought such info couldn't be gathered anymore.

I was wrong.

How Much Are Teslas Using Superchargers?

It turns out the Rud/Oslo service center has such an information display (According to the comments in the video, the Dublin, California service center also has one). And it provides almost the same information as the one in Hawthorne used to. This video was uploaded on April 29 (contact me if it's taken down from YouTube).

Well, that's 119.35GWh in cumulative usage. How much is that? Can we compare it to previous numbers? Yes, because this infographic from April 22, 2015, shows cumulative usage of 29.5GWh. In other words: in just over a year, the network consumed 89.85GWh.

(As a curiosity, the information displays seem to exclude mobile Superchargers, so they may underestimate total consumption. The evidence from this comes from the Hawthorne Supercharger, which was consistently in the top 10 during most of 2014 but disappeared in October and November. In fact the site was still operating, but the permanent Superchargers had been replaced by mobile units while the station underwent an expansion).

Now we need to know how many cars were on the road in the year these 89.85GWh were consumed. Here I show Tesla's deliveries of Model S and Model X:

Q1

Q2

Q3

Q4

2012

253

2400

2013

4,900

5,150

5,500

6,892

2014

6,457

7,579

7,785

9,834

2015

10,045

11,532

11,603

17,478

2016

14,810

I assume every delivery is capable of Supercharging. The only version that couldn't Supercharge by default is the Model S 60kWh, which was discontinued in early 2015, accounted only for 2% of sales in 2014, and offered Supercharging as a $2,000 option (anecdotal evidence suggests almost everybody bought it). Additionally, there were a few 40kWh sold in 2013 (many of which were upgraded via software to 60kWh and Supercharging capability). Additionally, some of these 40 and 60kWh cars may have been bought back by Tesla and upgraded to include Supercharging. In short, the number of non-Supercharging-enabled Teslas on the road is trivial.

Now we calculate how many car-months have elapsed, cumulatively. I count one month for the quarter a car has been sold in. If deliveries were spread over the quarter in fact 45 days would elapse, but Tesla tends to make a push for deliveries near the end of every quarter. This is necessarily an approximation but the effect on the numbers is minimal.

So we get the number of car-months elapsed per quarter:

Q1

Q2

Q3

Q4

2012

253

3,159

2013

12,859

27,809

43,609

61,501

2014

81,742

102,235

125,178

150,582

2015

180,295

211,917

246,584

287,268

2016

337,034

The period from April 22, 2015, to April 29, 2016, is not a perfect match with Q2'15-Q1'16, but it's close enough. And if we add up these four quarters, it turns out that in this 12-month period 1,082,803 car-months elapsed. That's 90,233 car-years.

Applied to the 89.85GWh we saw before, it turns that each Tesla consumed 996kWh from Superchargers over that year. If we reduce it by 2%, to account for the fact that the period is 53 weeks long rather than 52, we are left with 977 kWh per car, per year.

And in fact, the per-car figure must be higher because not all cars have been using the network all this time. Some have been lost in accidents, others have been repurchased by Tesla and are now in inventory, etc. Nevertheless, the average Tesla is just over one year old so I expect this effect to be small.

Is That More Than Before?

Yes. It beats previous figures by a mile.

Here you can see estimated consumption per car-year for four different periods:

2013

2014

Q1 2015

Q2 2015-Q1 2016*

Consumption (MWh)

2,000

20,000

9,000

89,850

Car-years elapsed

12,148

38,311

15,025

90,233

Consumption per car-year (kWh)

165

522

599

977

*The actual period is April 22 to April 29. As stated in the previous section, if dividing by 52 weeks one gets 996 kWh/car/year, but accounting for the extra week drives it down to 977.

Notice that all consumption figures are estimates (I offer more details about the first three in the previous article). While a particular growth rate is hard to determine, it's undeniable that consumption per car has been growing strongly.

But remember that 977kWh is the average consumption for the period from April 2015 to March 2016. If consumption has been growing, in fact it's almost certainly above 1,000kWh by now. So using 1,000kWh per car-year as an estimate of future Supercharging use is extremely conservative.

The relatively good news is that Supercharger utilization is higher than before. Getting the number of Supercharger-months elapsed per quarter:

Q1

Q2

Q3

Q4

2012

10.5

10.5

2013

21

24

54

135

2014

237

328.5

487.5

792

2015

1,095

1,273.5

1,441.5

1,654.5

2016

1,806

We find that in Q2 2015-Q1 2016, Superchargers spent a total of 6,175.5 months open. Assuming three chargers per station, at 120kW each, they could have provided 1.6TWh. Consumption over the period was 89.85GWh, so utilization was 5.6% - considerably better than the 3-4% seen in previous periods. But how much does it affect cost?

In the previous article, we saw that each station costs over $300,000 and depreciates over approximately 10 years. From that, we concluded that depreciation expense per station per month is $2,500. Over 6,175.5 months, that's $15.4 million. In other words: even though utilization increased, depreciation expense per kWh was still 17 cents per kWh. So depreciation alone probably made Superchargers more expensive than US residential electricity.

As An Aside, A Note On Utilization And Charging Rates

The video posted by Bjorn Nyland, apart from data on cumulative global consumption, offers some detail on six of the top 10 busiest Supercharger stations. Here I report their power capacity (measured in number of chargers), consumption and utilization. It's also possible to get the charging rate by looking at how many cars have been charged and how many minutes the average car spent charging; we can then compare the total time spent charging with consumption to get the average charging rate (per car or plug, not per charger).

Station

Chargers

Consumption (kWh)

Utilization (%)

Cars

Minutes

Rate ((kW))

Amsterdam

5

5,196

36

173

34

53

Dublin

5

4,907

34

138

40

53

Fountain Valley

4

4,309

37

114

42

54

Fremont

6

5,067

29

145

39

54

San Diego

6

3,964

23

105

42

54

San Mateo

4

4,107

36

118

39

54

(All of this is calculated assuming each charger provides 120kW. In fact some of them can provide 135kW, so the real utilization rates are lower.)

Although the numbers are considerably better than could be expected from my previous article, these are the busiest stations in the world, after all. At least two of them (Fountain Valley and San Mateo) have attendants to handle queues, and one of them is at only 23% utilization (San Diego - number 7 globally). In other words, the network as a whole can perhaps get to 10% utilization, but 20% is reserved for the top stations. This has implications for the depreciation expense (which would be 10 cents per kWh if utilization hit 10%).

In Conclusion: How Many Gigawatts Does Tesla Owe?

One way to look at the issue is on a per-car basis. Tesla has not disclosed operating costs for the Superchargers, but we know that they were about 80 cents per kWh in 2013. 15,000 or 20,000kWh per car, at an assumed 20 cents per kWh, imply a cost of $3,000 and $4,000 respectively. It's increasingly obvious that Tesla's $500 won't cut it. It's also obvious by allocating costs to SG&A instead of COGS, as well as using an absurdly short performance period of eight years, the company has artificially inflated gross margins by several percentage points.

Another way is by looking at the total of cars sold and how it measures up to the company's financials. Tesla has sold over 120,000 cars. Some of them are not on the road, as mentioned, due to accidents and repurchases. This means that when estimating Tesla's "Supercharger debt," we will overshoot by including cars that in fact cannot use Supercharging anymore (if they have been totaled). Nevertheless, this also means we underestimated per-car use in the previous section, offsetting the overestimate. Until more information on how many Teslas are actually on the road appears, I prefer to leave it at that.

Here I will estimate how much electricity Tesla has to supply assuming car lives of 15 and 20 years. First of all, we have to recognize that several years have elapsed since Tesla started selling the Model S, i.e. the fleet's age is not 0 years. We get fleet age by dividing the cumulative months elapsed by the installed base:

Q1

Q2

Q3

Q4

2012

1

1.3

2013

2.2

3.5

4.8

5.9

2014

7.3

8.5

9.8

10.7

2015

11.8

12.8

13.9

14.3

2016

15.3

By the end of last quarter, the average Model S or X had seen 15.3 months on the road. This means Tesla has to provide service for another 164.7 months (if average life is 15 years) or 224.7 months (if average life is 20 years). Translated to normal speech, that's an additional 13.725 and 18.725 years, respectively.

Cumulative deliveries are 122,218, so in the first case the "electricity debt" is 1,677GWh for the 15-year case, and 2,289GWh for the 20-year case. Again, this assumes consumption is 1,000kWh for all these years (in fact it's almost definitely higher already).

As for how much that is going to cost, well, we won't know until the company discloses operating costs. But again assuming a cost of 20 cents per kWh, Tesla's electricity commitment will cost $335 million in the 15-year case, and $457.8 million in the 20-year case. This excludes capital costs, i.e. building the Superchargers themselves. For context, by last quarter, Tesla's net equity had dropped to $970 million.

The very attentive reader will be thinking: hey, sure $300 or $400 million or whatever is the total cost - but hasn't it already allocated for part of that? Well, yes, you got me there. Tesla does defer some revenue, so a small part of the figures I just mentioned is already funded. I didn't account for that in the last paragraph because Tesla has stopped disclosing how much it defers for Superchargers. At least in the Q4 2015 filing it cannot be found. I will update the article as soon as the Q1 2016 10-Q is out and report on what it says about the issue (if anything).

Update: The 10-Q is out now, and to be fair, it does disclose revenue deferred, both for Q1 2016 and Q3 2015. Here, I show cumulative revenue deferred (RD) at the end of a period, revenue deferred per quarter (RDQ) (accounting for the fact that it's recognized over an eight-year period), and revenue deferred per per car (RDC).

The latter is actually two rows. The first shows how per-quarter car deliveries compare to the revenue deferred that specific quarter (RDCQ). The second compares cumulative car deliveries to cumulative revenue deferred (RDCC). There is something of an uptick in RDCQ the last two quarters, but it's hard to tell if it's part of a trend, and Tesla is going to start deferring more to pay for the service (In any case, there is a huge gap between the $58.3 million currently deferred and the hundreds of millions I estimated the Supercharging service is going to cost).

13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1
RD 7.2 10.3 13.9 18.3 21.9 25.6 29.1 34.6 40.1 49.5 58.3
RDQ 3.2 3.3 3.9 4.8 4.2 4.4 4.3 6.4 6.6 10.7 10.3
RDCQ 587 482 607 638 536 446 428 556 567 610 699
RDCC 396 410 441 468 467 451 436 442 446 461 477

RD and RDQ are expressed in millions of dollars, while RDCQ and RDCC are expressed in single dollars, as they are per-car measures.

Perhaps Superchargers aren't that important to Tesla? The 10Q includes the tidbit that the company intends to open 'approximately 250 new Supercharger locations' this year, down from the original target of 300. Likewise, while the company originally aimed to open 80 sales and service centers this year - now it's talking about 70.

Of course, this walkback in expansion comes even though the company's goal for capital expenditures has ballooned from $1.5 billion to $2.25 billion. Less bang for more bucks?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.