Tesla Cashflow Analysis v2

On April 5th, I posted my Tesla Cash Burn Analysis, which I updated on April 8th, after getting feedback from the $TSLAQ community.

Let’s see how I did.

Accuracy Report

*The cash balance was actually projected as $1.8B plus up to $500M of window dressing. Assuming $500M of window dressing (the assumption I used when analyzing Q4 ending cash), the actual cash available to Tesla would be $100M lower than I projected.

While I hadn’t posted it, I had also predicted an Accounts Payable (AP) balance of $3.2B (if you don’t believe me, ask @KlendathuCap–he’ll back me up). Actual AP came in at $3.248 (-1.5%).

Not bad! Especially since there were several gross estimations in the inputs along the way. I guess I got lucky and “roughly right” worked out this time.

What Didn’t Work So Well

While my overall predictions look pretty good, I was quite surprised by a few things:

Revenue came in as projected, but Tesla reported $501M in negative revenue adjustment This means that absolute top line revenue was $501M higher than I expected The higher accrued revenue could be from recognizing FSD revenue (which not impact cash) The higher accrued revenue could also be from higher ASPs (which would impact cash) Comments about the M3 ASP on the conference call make this unlikely For now, I’ll assume Tesla recognized FSD revenue to offset negative revenue adjustment they had to take from slashing prices

-$279M in Capital Expenditures (CapEx) I (intentionally) hadn’t included CapEx Since ending cash was close to my projection and I’ve used my slip-factor to account for the extra cash from higher ASPs, this means that there was an additional source of cash to offset CapEx



What We Can’t Trust

There are some important pieces of evidence to suggest that Tesla has been very aggressive in window-dressing Q1 results.

Gross margins look to be a bit overstated. Given reported numbers and the ASP analysis I did as part of the Tesla Cash Burn Analysis, the following numbers seem to be reasonable assumptions:

Total Automotive Sales Revenue: $3,509B

Model S/X Sales Deliveries: 11,849 12,091 total deliveries, less 2% for deliveries made on leases ASP: $91,000 COGS / Unit: $90,750 (this represents a 25% gross margin given an ASP $121,000 before Q1 price cuts

Model 3 Sales Deliveries: 49,909 50,928 total deliveries, less 2% for deliveries made on leases ASP: $48,700 This is the ASP required to hit automotive sales revenue COGS / Unit: $38,958 Based on Telsa’s reported Model gross margin of 20% in Q1’19



Using these numbers, the total COGS comes out to $3,020B vs $2.856B reported in the letter.

This suggests that Tesla re-allocated $200M of COGS expense into other buckets, in order to report a higher gross margin.

In this thread, @cfisher6 notices that SG&A increased by $40M, after multiple rounds of layoffs, store closings, and a 33% drop in delivery volume.

@rocket_jenross suggests that it may have been done by clawing back expenses in the current period, only to increase the net period’s contract obligations by the same amount.

The current quarter expense would have appeared in Tesla’s Accounts Payable (AP). To make the reduction, the vendor would have to send cash back to Tesla (obviously something they’d be loathe to do). Instead, Tesla can offer to accept the clawback as a receivable, adding to the Accounts Receivable (AR) balance.

The net effect is: Tesla shows a lower COGS but a higher AR balance. The vendor ends up reporting a lower revenue and a higher AP balance. @BradMunchen has suggested that Tesla and Panasonic entered such a deal last year.

This would also explain another anomaly in Tesla’s balance sheet. Despite a -37% Q/Q decrease in top line revenue, their AR balance actually increased +10.3%.

I don’t know exactly what’s going on. The explanations are all speculation, but something doesn’t jive.

This leads me to conclude that trying to reconcile my cash-based accounting to Tesla’s reported numbers is likely futile—and I should continue down the path of trusting as little of the reported statements as possible.

Looking Forward

Starting Cash Balance for Q2 2019

Tesla reported $2.2B of cash, within my expected range of $1.8B - $2.3B (the range was based on $1.8B of actual cash plus an unknown amount of window-dressing).

I assumed $500M of window-dressing coming in to Q1 ’19. Let’s be conservative and assume $400M of window-dressing at Q1 end, resulting in $1.8B of starting cash.

Of that starting cash, $600M is locked up in Singapore, as collateral for the Gigafactory 3 construction loans. I also assume another $200M is required to support overseas operations, leaving Telsa with $1B of US-domiciled cash it can use.

Note: Telsa had $793M in customer deposits at the end of Q4. A significant fraction of their current cash is likely customer deposits still. However, I’ve found no evidence that Tesla is restricted from using this cash to fund operations, so I’ll just assume $1B in usable cash coming into Q2.

Cashflow Outflow Assumptions for Q2 2019

I’ve listed my assumptions below, only justifying the new or changed assumptions.

Most of the assumptions are unchanged from my original Tesla Cashflow Projection and the follow Cash Burn Analysis. Please see those posts if you have questions about the other assumptions.

Cashflow for expenses incurred in Q1 $3.25B in Accounts Payable (taken from Q1’19 Update Letter, the monthly breakout is a assumed) -$800M in April -$1,220M in May -$1,200M in June Fraction of AP due on Friday of each week, based on number of Fridays in month -$185M in VAT tax payable, based on @fly4dat’s data

Cashflow from operations -$25M / month in retail leases -$65M in payroll due every 2 weeks -$96M /month in capital expenditures, based on Q1 run rate from Q1’19 Update Letter

Cashflow from financing -$182M Solar City debt due by end of April -$41M / month in other interest expense (not bonds)



Revenue Assumptions

I have far less confidence in the revenue assumptions for Q2, compared to the starting cash balance and expenses. Telsa’s cash situation is also very sensitive revenue inflows. Seems like a perfect time for a scenario analysis.

I’ve modeled 5 scenarios ranging from 30k unit deliveries to 90k unit deliveries. All scenarios assume:

Mix 3:1 Model 3 to S/X deliveries S/X ASP: $91,000 Model 3 ASP: $50,000

Timing 25% of deliveries in April April deliveries would normally be lower, but there were a significant number of March deliveries delayed in to April 25% of deliveries in May 50% of deliveries in June Deliveries inside each month a spread uniformly across all days in the month



Results

The results range from Tesla running out of cash as early as May 3rd to generating $1.2B in free cash.

Using the given assumptions, Tesla has to deliver somewhere between 54,000 and 66,000 cars in Q2 to avoid running out o f cash. Even in the 66,000 delivery scenario, they skate by–the projected cash balance is just $209M at the end of May.

While I certainly don’t pretend to be able to predict the future with this level of accuracy, the model suggests that the bankruptcy cutoff is 60,000 deliveries. If Tesla hits that number—and everything goes right with cashflow—they’d survive. If they fall short of that pace along the way, $TSLAQ.