Tesla: My Early Q2 Earnings Estimate

Summary

• I estimate GAAP, Non-GAAP and cash position for Tesla.
• I predict Tesla will report GAAP earnings of $-2.70 and Non-GAAP earnings of $-1.95.
• I predict Tesla will burn through over $900 million in cash during the quarter.

In this article, I will provide my detailed estimate for Tesla (NASDAQ:TSLA) earnings, which will be reported on August 2nd. I will detail the entire process I used to arrive at my estimate of GAAP EPS of $-2.70 and Non-GAAP EPS of $-1.95. My Non-GAAP estimate is lower than the current Wall Street estimate of $-1.72, and the Estimize consensus of $-1.58.

(Estimize)

The second item I will be estimating is the cash position of Tesla, since it is one of their prominent bullet points in their quarterly earnings reports. If Tesla does meet its stated target of $2 billion of CAPEX in the first half of 2017, along with covering operating losses for the quarter, I predict that Tesla’s cash balance will drop to just under $3.1 billion, which means a burn rate of over $900 million in the second quarter.

Tesla Earnings Estimate

Following my bullet points below, I provide an income statement with all the following data compiled for my estimate for Q2 earnings. I go line by line to detail how I arrived at my estimate.

Revenues

• Automotive Revenue: During Q1 Tesla posted automotive revenue of $2.035 billion on 25,051 deliveries, which comes out to just over $81,240 per delivered car. With Tesla recently announcing just over 22,000 deliveries for Q2, I used 22,100 deliveries in my estimate and applied the $81,240 per delivery rate I calculated above and arrived at $1.795 billion in automotive revenue for the quarter.
• Automotive Leasing Revenue: Automotive leasing between Q1 2017 and Q4 2016 was virtually unchanged, so I left the same value as in Q1 2017.
• Energy Generation & Storage Revenue: Tesla grew its energy generation and storage revenues at 62.84% Q/Q, so I applied that rate to the revenues from last quarter and arrived at $348.38 million in energy generation & storage revenues.
• Services & Other Revenue: Tesla grew its services & other revenues at 21.12% Q/Q, so I applied that rate to the revenues from last quarter and arrived at $233.42 million in services & other revenues.

Cost of Revenues

• Automotive Cost of Revenue: Last quarter automotive cost of revenue was 73.54% of revenues, so I applied that rate to my estimate for automotive cost of revenues.
• Automotive Leasing Cost of Revenue: Last quarter automotive leasing cost of revenue was 65.23% of revenues, so I applied that rate to my estimate for automotive leasing cost of revenues.
• Energy Generation & Storage Cost of Revenue: Last quarter energy generation & storage cost of revenue was 70.94% of revenues, so I applied that rate to my estimate for energy generation & storage cost of revenues.
• Services & Other Revenue Cost of Revenue: Last quarter services & other cost of revenue was 110.97% of revenues, so I applied that rate to my estimate for services & other cost of revenues.

Operating Expenses

• Research & Development: In the Q1 earnings report Tesla gave the outlook that operating expenses would be flat to slightly up. I suspect they will be slightly up and to determine that rate I looked at the growth rate of research & development in the previous three quarters prior to the last two when spending has ramped up. Over those three quarters, research and development grew at 8.44%, therefore, I applied that rate to the Q1 research & development total for my Q2 estimate. “We expect Q2 GAAP and non-GAAP operating expenses to be flat to slightly up from Q1, including expenses associated with the final stages of Model 3 development and growth in our customer support infrastructure.” (Q1 earnings report)
• Selling, General & Admin: As I noted in the quote above, operating expenses would be flat to slightly up in Q2. I looked at the growth rate of selling, general & admin in the previous three quarters prior to the last two when spending has ramped up. Over those three quarters, selling, general & admin grew at 2.94%, therefore, I applied that rate to the Q1 selling, general & admin total for my Q2 estimate.

Interest & Other

• Interest Income: I left interest income constant.
• Interest Expense: For interest expense, I used $115 million, because that is the amount that was referenced by Tesla in their Q1 earnings report.“Q2 interest expense will reflect the full quarter of impact for the convertible securities we issued in Q1, leading to about $115 million of interest expense per quarter.” (Q1 earnings report).
• Other Expenses: I left other expense constant.

Taxes

• Provision for income taxes: For Q1 provision for income taxes was 0.94% of revenues, therefore I applied that to my Q2 revenue estimate to arrive at a tax provision for Tesla of $24.67 million.

Non-Controlling Interest

• Net loss attributable to noncontrolling interests: Net loss attributable to non-controlling interests declined 31.82% Q/Q so I applied that rate to the Q1 total.

Shares Outstanding

• Shares Outstanding: During the quarter, Tesla had a deal where certain holders of convertible stock were able to convert to 1.16 million shares of common stock, therefore I added 1.16 million shares to the Q1 share count to get me Q2 share count total.

Stock Based Compensation

• Stock Based Compensation: The final item I looked at was stock based compensation because stock based compensation is added on to arrive at Non-GAAP EPS, which is the EPS value that is widely reported on most financial news sites. I estimated stock based compensation to increase to $122.90 million, which based on my estimated share count if $0.75/share that will be added to Non-GAAP EPS.

2017 Q2 Estimate
Revenues
	Automotive	1,795,331
	Automotive Leasing	254,540
	Total Automotive Revenue	2,049,871
	Energy Generation & Storage	348,381
	Services & Other	233,425
	Total Revenues	2,631,677
Cost Of Revenues
	Automotive	1,320,344
	Automotive Leasing	166,026
	Total Automotive Cost of Revenue	1,486,370
	Energy Generation & Storage	247,143
	Services & Other	259,042
	Total cost of Revenues	1,992,555
	Gross Profit	639,122
Operating Expenses
	Research & Development	349,220
	Selling, General & Admin	621,197
	Total Operating Expenses	970,417
	Loss From Operations	-331,295
	Interest Income	3,090
	Interest Expense	-115,000
	Other Expense	-18,098
	Loss Before Income Taxes	-461,303
	Provision for Income Taxes	24,672
	NET LOSS	-485,976
	Net loss attributable to noncontrolling interests	-45,614
	Net loss attributable to common stockholders	-440,362
	Shares Outstanding	163,289
	GAAP Loss Per Share	-2.70
	Stock Based Comp	122,909
	Non-GAAP Loss Per Share	-1.95

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Tesla Cash Estimate

Following my bullet points below, I provided a table pulling together all the data I collected for my estimate of how much cash Tesla will have when they report earnings. I started with cash from Q1, subtracted operating losses and CAPEX. I then added back in my estimate for how much of CAPEX would be paid for at a later date. The reason for adding these items back in was because of what was in the Q4 Tesla earnings report. It stated that payments for CAPEX would be made beyond the start of the launch of the Model 3, therefore I assumed that accounts payable and accrued liabilities would increase given this stance.“Pushing some payments closer to the start of Model 3 production and some payments beyond the start of production.”

• Net Loss: Tesla will have to draw out of its cash to cover its net operating loss attributable to common shareholders.
• CAPEX: Tesla posted CAPEX of $772.57 million in Q1 and as I noted at the beginning of my article, Tesla expects to spend $2 billion in the first half of 2017 on CAPEX, which puts the remaining amount that should be spent during Q2 at $1.23 billion.
• Accounts Payable Change: Last quarter the change in accounts payable as a percentage of CAPEX as 27.83%, so I applied that rate to my estimate for Q2 CAPEX to arrive at my estimate that accounts payable would increase by $341 million this quarter.
• Accrued Liabilities Change: Last quarter the change in accrued liabilities as a percentage of CAPEX as 32.40%, so I applied that rate to my estimate for Q2 CAPEX to arrive at my estimate that accrued liabilities would increase by $397 million this quarter.

Q2 2017 Cash Estimate
Cash @ End of Q1 2017	4,006,593
Net Loss	-440,362
Capex	-1,227,428
Accounts Payable Estimate	2,416,903
Accounts Payable Q1	2,075,333
Account Payable Change	341,570
Accrued Liabilities Estimate	1,858,094
Accrued Liabilities Q1	1,460,367
Accrued Liabilities Change	397,727
Estimated Cash	3,078,100
Change in Cash	-928,493

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Closing Thoughts

In closing, based on my estimates, I expect Tesla to report GAAP EPS of $-2.70 and Non-GAAP EPS of $-1.95, and have burned through just over $900 million in cash during the quarter. The real question that will be answered in the coming quarters is whether the second quarter is the trough in losses because of the substantial amount of spending that has gone into making the Model 3 possible or will losses grow as production rises?

Disclaimer

Analyst’s 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.