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Tesla's Q1 Revenue Beat Driven Largely By Accounting Changes, Model 3 Currently Loses $8K Per Unit

May 03, 2018 12:37 PM ETTesla, Inc. (TSLA)115 Comments
Marginal Analysis profile picture
Marginal Analysis


  • In a previous analysis, we correctly projected costs for Tesla'a Auto segment but widely missed on revenue.
  • Upon investigation, average sale price (ASP) of $105K across S/X volume proved reasonable, but the volume of units accounted for as non-leased revenue was wide of the mark for S/X.
  • The reason? A recent FASB rule change entering into effect, with Tesla interpreting the rule in such a manner that lease-accounted units fell to only 8% of deliveries.
  • A quick analysis of gross margins revealed Model 3 COGS are currently $58-60K per unit, though per unit costs will fall as production rates improve.
  • We continue to doubt that Tesla will be able to sufficiently increase production and lower costs to generate a net profit by Q3.

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In our previous analysis, we estimated Tesla's Q1 2018 Auto revenue at $2.167B; we, along with many other analysts, were surprised to see Tesla reported $2.562B in Auto revenue for the quarter. This was well above general expectations, and contributed heavily toward more acceptable gross margins for the segment, rather than the feared low double digits or even single digit margins for the segment.

The proportion of revenue in this division attributable to the Model 3 is fairly easy to determine. With Tesla delivering 8,180 Model 3s in Q1 and the possible price range (after delivery) spanning $45K to $58K (a relatively small breadth), an ASP of $50-52K may be interpolated. This in turn yields a revenue figure of approximately $410-425M from Model 3 in the quarter (even if all vehicles sold were at the $58K price point, which we have no reason to believe this is anywhere close to the reality, Model 3 revenue would still be less than $475M). This results in $2.152B of revenue assigned to S/X deliveries. In the previous quarter, 77% of S/X deliveries were for sold units. With approximately 21,815 units of the two legacy models delivered in the quarter, this would have equated to roughly 16,800 units accounted for in this division if the proportion of 77% had held constant, implying an ASP of unprecedented levels, at $128K per unit (over the previous 4 quarters, the S/X ASP ranged from approximately $101K to $113K). If Tesla had achieved a massive ASP improvement to offset a decline in S/X volume, this would have a significant, positive impact on the outlook for the stock. As we discuss below, while ASP moved up slightly, the beat is driven not by some fundamental improvement

This article was written by

Marginal Analysis profile picture
Finance, marketing analytics, pricing optimization, and corporate strategy background across tech, energy, telecom, and industrial manufacturing.

Analyst’s Disclosure: I am/we are short TSLA. 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.

One or more of the author(s) is short TSLA via long-dated options. One or more of the author(s) is a Model 3 reservation holder.

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