Will Tesla Report A Q1 Loss? Or A Tiny Profit?

JAN 28 2019 BY MARK KANE 69

European customers are now really important for Tesla’s future

The most recent message from Tesla CEO Elon Musk to employees about an upcoming reduction of full-time employees by about 7% and words that “the road ahead is very difficult” raised concerns about maintaining profitability by the company.

According to Reuters, analysts expect that:

  • the profits in the fourth quarter of 2018 will be lower than in Q3 (Q4 report is set on Jan. 30)
  • there is high probability of “tiny profit” or loss in the Q1 2019

The main issue with Q1 is the shift to production and sales of Tesla Model 3 for Europe and China. Many of those cars will be in transit, so the revenues will be collected with delay in Q2. We guess that from Q2 on, the situation should stabilize.

On the other hand, it seems that Tesla managed to increase production of Model 3 beyond 5,000 per week (maybe even close to 6,000) according to Bloomberg’s Tesla Model 3 Tracker. Moreover, Tesla will sell mostly top of the line versions of the Model 3, which are most profitable, so we would not dramatize too much here.

“Wall Street analysts expect Tesla Inc to forecast a loss for the first quarter when it reports results on Wednesday, having changed their expectations for a profit after Chief Executive Officer Elon Musk warned of a “very difficult” road ahead.”

“The analyst consensus on Jan. 21 turned to a loss for the first quarter and stands at $2.5 million. Analysts on average were expecting Tesla to post a profit of $62.80 million on a reported basis as of Jan. 17, according to Refinitiv data.”

Source: Reuters

Categories: Tesla

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69 Comments on "Will Tesla Report A Q1 Loss? Or A Tiny Profit?"

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Difficult for me to imagine how they will pull off a profit. However if it is a loss, then I expect it will be very small. Lower income by delay of shipping cars to Europe and China is a given, but unknowns are in the utility scale battery back up business and solar. Could be enough to bring a small profit.

Elon already stated that there will be a profit, but smaller than last quarter.

“…In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. ” – Elon

So I don’t get why anyone would think there would not be a profit.

Headline says q1.

ha ha….very good.

In that case, with 3 months of overseas deliveries of the high trim models for China and Europe, along with the ramp up for the base Model 3 in NA, profitability looks good.

(⌐■_■) Trollnonymous

I wonder how many of those FTE’s are temps.

When I worked at a large company, I hated that they eventually hired Perm FTE’s instead of temps for production /projects and when they had to thin the herd, those Perm FTE’s had to be laid off most of the time also with the temps.

“Will Tesla Report A Q1 Loss? Or A Tiny Profit”

They may guide for a Q1 profit or loss, but they’d have to be psychic to actually report something that will not be known for at least another 2 months

Glad someone pointed this out. This speculation is very premature!

“This speculation is very premature“ Yet another dumb comment by Pushmi. It is NOT speculation and nor premature. In contrast, it’s quite academic. 1. Tesla uses US GAAP 2. US GAAP uses the matching concept, e.g accrual accounting 3. You start with the steady state condition. For example, for the Model 3, you assume X number of cars will be produced in Q1:19. That is the cost side, e.g. cost is a function of cars produced. On the revenue side, you add in revenues from cars produced in Q4:18 that was sold in Q1:19 and you BACK OUT the potential revenues of cars produced in Q1:19 but not sold. Please note under US GAAP, revenues is recognized when realized! Here’s a big hint (obviously too difficult a concept for Pushmi), Tesla announced it wants to grow sales of Model 3 (and production of Model 3 is ramping up [A]). Logic dictates you must produce the car before you can sell it (this costs comes ahead/before revenues!!). Therefore, Tesla is telegraphing higher MARGINAL COSTS than MARGINAL REVENUES; the difference is based off the function of UNSOLD CARS PRODUCED IN Q1:19 (marginal costs) vs CARS SOLD IN Q1:19 but produced in Q4:18… Read more »

Jason, it seems you think they are paying suppliers, for elements used to create Model 3’s, before they build the cars. Then, of course Actual Costs Would happen before Revenues!

What you forgot, was the public knowledge that, for the Model 3, Tesla got very favorable Payment Terms, allowing for Revenue BEFORE Actually Paying for Supplies, in Many Cases, if not All!

“Then, of course Actual Costs Would happen before Revenues!“ You need to think this through. For example, when Tesla was developing the Model 3, it had costs but no offsetting revenues. Tesla had to get equipment first (aka Capex) before it sold any Model 3. Tesla had to train its employees before it sold any Model 3. These are start-up costs that are to be recouped when Model 3 hits a steady state except Elon wants to ramp up Model 3 so it keeps incurring new set-up costs. Take the plant in China. That plant has costs BUT no revenues. It cost lots of money to build a massive plant in China. Again, under US GAAP, it’s the matching concept based of accrual based accounting. If you produced something, it has costs. Now, you need to match those costs to sales. In Tesla’s situation (much easier to show using calculus via functions) more Model 3 are being produced than being sold in Q1:19 AND you need to add set-up costs like the plant in China. Robert Weekly, you really should take the time to read Telsa’s audited financial reports. You might learn something. Don’t take my word; take Tesla’s auditor’s… Read more »
“What you forgot, was the public knowledge that, for the Model 3, Tesla got very favorable Payment Terms, allowing for Revenue BEFORE Actually Paying for Supplies, in Many Cases, if not All!“ Robert is confused. Tesla produces an income statement as well as a statement of cash flow. Costs are captured on the income statement; the timing of the payment of these costs are captured on the statement of cash flow. This article is about income statement, not cash flow so it’s NOT about the timing of the payments. Here is an example: take a factory worker assembling the Model 3. His wages are captured on the income statement as a line item called employees wages. His wages are an expense REGARDLESS if the Model 3 he helped assemble were sold (in that fiscal quarter). Again these expenses are on the income statement. When Tesla pays the wages are captured on the statement of cash flows. As a corollary, the supplier costs are captured on the income statement (e.g. COGS, etc) . The timing of payment for the supplies are captured by the statement of cash flows. Thus, Robert’s comment about favorable payment terms are captured by statement of cash… Read more »

“Robert is confusing the income statement & statement of cash flow.”

Or Robert mistakenly believes that Tesla is using cash basis accounting instead of accrual basis accounting like every other publicly traded company.

Either way, Robert is wrong.

https://www.nolo.com/legal-encyclopedia/cash-vs-accrual-accounting-29513.html

To be fair, everything Jason says is just as wrong.

Don’t know about psychic, I’m sure Tesla has a pretty good idea about the number of cars it could deliver in Q1.

Another Euro point of view

You might be right but then again the European sales will partly depend on the European customers actually trying the car, something they did not do yet despite placing orders. Apparenty the Model 3 is a very enjoyable ride so one could assume that most of the orders will results in sales and some more. But nevertheless it leaves some uncertainty.

The European audience will definitely try the Model3! The Tesla stand at the Brussels motor show last week was very busy all the time! Lots of excitement!!
But there might be a problem with the standard autopilot (so not the enhanced): adaptive cruise control is fairly standard in a car costing 58,000 Eur (long range version, incl taxes). In fact it’s a standard feature on any new VW golf in Belgium … I know it’s a small item but could be a significant one. Note I am NOT referring to the lane change and exit feature.
The price for the complete Model 3 is high, so the typical BMW 5 or X5 and Audi A6 buyers will expect this feature without the need to pay extra!

Not really; they have a schedule for the ro-ro’s, so they know how many cars will be in transit to Europe/China. I expect they will ramp up vehicles in transit over 2-3 quarters, but it will necessarily impact profit and cash flow in the short term.

Likewise, they have reasonable expectations on total production volume, asp, and margin at this point for Q1– although they might not have much visibility for Q2 or FY2019 yet.

Tesla probably has a pretty good knowledge of how Q1 is going to go. They know their demand, shipping times and cost. Any vehicle being shipped overseas probably has a name associated with it. Now in the US things could be different as far as demand. We’ll have to see how the late 4Q push affects Q1 results.

“There is high probability of “tiny profit” or loss in the Q1 2019.” I’d say there’s a 100% chance of that- very insightful.

Sorry John, it’s not a 100% chance. There’s a small chance Tesla could break even and report no (zero) profit or loss.

Good point. I didn’t figure the odds for breaking even- I stand corrected. Sometimes the obvious stares us right in the face..

the probability for that is extremely small, as in less than 10^-7
however there is yet another possible outcome : global war/catastrophe that would destroy tesla and/or the economy in such a way that tesla will not report anything as nobody will be around or care about the financials of a former company, currently a mount of ruble.

Or there could no war/castastrophe and we’re all still around commenting on InsideEVs, but Tesla declares bankruptcy before the end of Q1 2019. For example, Tesla could be revealed to be a huge Ponzi scheme and Elon flees to Mars on a SpaceX rocket before the authorities nab him. 🚀

😉

“Tesla could be revealed to be a huge Ponzi scheme…”

I have seen several, or many, hardcore serial Tesla bashers claim exactly that, using that exact term: “Ponzi scheme”. And unlike you, they were not kidding.

What makes you think Impartial Observer who I suspect is the artist formerly known as Think Deeper and/or Sven is kidding here?

🤦🏻‍♂️ Perhaps it’s the winking emoji at the end of comment.
https://emojipedia.org/winking-face/

😉 = kidding

And FYI, 🤦🏻‍♂️ = facepalm
https://emojipedia.org/man-facepalming/

A “ponzi scheme” that has products that are AIRFREIGHTED by the big German co.s to find out what makes it tick and the Chinese Auto comp. buying Sandy Munro s Teardown Report& Analysis @ 1 million$$$$ a copy. LOL

Naw! The Earth is Flat! Elon’s Rockets will just take him out in the ocean, and dump him there! He will use his James Bond Underwater Car, to go to the Secret Island He Build, that Looks Like Mars!
/S 😂😁😀

Are they reporting in dollars or cents?
If cents, really difficult to break even.

Huh? That Makes No Cents!
🤨

Sure! Maybe a 0.0000001% chance, is STILL “A Chance!”

I assume reservations as revenue counts towards profit? The Model Y is supposed to be unveiled in March, 200,000 reservations at $1,000 each would add $200MM to the balance sheet.

To early to release to launch the Y. Eat up the 3 reservation

The thought is that is the Y will both be more expensive and profitable, if that’s the case it’s in Tesla’s best interested to convert base model 3 buyers to the model Y…

While that may be true, I doubt Tesla would be happy with potential Model 3 buyers waiting for a year or two to buy a Y, when they could be buying a Model 3 today. You’re unlikely to convert many people waiting for the $35k Model 3, you’re going to be converting people considering a $50-60k MR/LR. Tesla need cashflow right now.

Good chance it will eat up mine! Wife says Model 3 Seats are “Low!” As in, “Too Low!” So, a CUV, like the Y, may have her more on board! And, it may be Tow Rated, from the start! If no tow rating, not much take from the 3, I suspect!

Agreed. I think announcing the Model Y at this point would be a disaster especially with them wanting to sell higher spec Model 3s.

“I assume reservations as revenue counts towards profit?”

No. Reservation payments (deposits) are classified as assets on the balance sheet, not revenue/income on the income statement. The reservation payment is unrealized revenue until the car is actually sold to the customer, at which point the revenue is realized. The deposit then gets removed from the assets on the balance sheet and gets booked as income/revenue on the income statement.

Thank you for the clarification, that makes sense.

To be precise, the cash received is an asset and the ‘customer deposit’ entry on the balance sheet is a liability which balances that cash. The liability goes away when they refund the deposit or goes toward revenue when they sell the car.

Correct! Since it is “Refundable” it counts as in, and out (on Hold)!

Serious question, what about the accrued interest?

Deposits don’t accrue interest. At least not for the customer.

No, reservations don’t increase profits, they just increase cash on hand. Because for every $1000 in cash reservations generate, Tesla has to put $1000 dollars worth of debt on their books. For example, in their latest SEC filing they had this entry:

Liabilities
..Current liabilities
….Customer deposits $443,000

Deposits are a wash on the balance sheet that these numbers in this story are talking about. They can’t be moved to the profit side of the books until the car is sold and payment for the car is received.

Good point, though I’m sure investors like the insight that robust reservations offers.

“Customer deposits $443,000”

In the latest SEC filing? I see 906 million.

“Will Tesla Report A Q1 Loss? Or A Tiny Profit?”. I am somewhat confused. Tesla can forecast but cannot report anything for Q1 2019 any time soon. If this question refers to Q4 2018 which will be released on Jan 30, we pretty much know the answer: according to Elon will be a profit, but smaller than Q3.

GAAP or non-GAAP? There is a very good reason why many companies report TWO different sets of numbers. Having DOUBLE the amount of information reported in the SEC reports give investors much more information.

The GAAP numbers likely won’t account for the one-time costs of ramping up overseas sales. These numbers, while very much correct and accurate for that one quarter, won’t actually be very meaningful when trying to read the trajectory of the company.

The non-GAAP numbers will likely provide the additional information to help savvy investors understand what the one-time costs associated with doubling their sales market are, and what the actual trajectory of the company is.

There very well may be both a profit reported (non-GAAP) and a loss reported (GAAP).

(can’t wait for the comments by the folks who don’t understand that every company that reports non-GAAP also reports full GAAP numbers at the same time…)

“The non-GAAP numbers will likely provide the additional information to help savvy investors understand what the one-time costs associated with doubling their sales market are, and what the actual trajectory of the company is.”

This makes no sense at all. Tesla’s non-GAAP profit/loss excludes share based compensation from the GAAP number. That’s it. They used to also exclude SCTY acquisition losses, but that all washed through back in 2017.

Tesla also reports both GAAP and non-GAAP Automotive gross margin, with the latter excluding ZEV credit sales (but including GHG credit sales).

Tesla includes a lot of other numbers in their earnings report, e.g. how many cars they produced and sometimes how many cars they expect to deliver in future periods. These numbers are neither GAAP nor non-GAAP. They’re just numbers.

In transit. . well only for 2-3 weeks normally. And then there will be deliveries of expensive pre order models, with hopefully high profit.

I mean. . if they don’t make a profit with Model 3 – they are in trouble. Slowly more EVs arrive to the market: KIA/Hyundai/LEAF/Zoe/i3/e-tron/ are there now, or will be very soon.
Then PSA group, Volvo, Mercedes, more BMWs and the VW group.. and eventually some Japanese brands too.

The more Model 3 they sell, the more cars to share development costs on, and expensive manufacturing equipment. They have huge number of people waiting for their pre ordered car. Many wait for the cheap one of course, but many have ordered the top model too.

It actually isn’t just the transit time alone for much of the EU market. For tax reasons, Tesla has been shipping cars partially built, and then finishing the manufacturing at their factory in Tilburg. So there is an additional time delay variable at play.

They seem to be shipping full cars, not knockdown kits. At least for now. They’re using roll-on/roll-off ships instead of packing th kits in containers.

The cars shipped from the U.S. to Tesla’s Tilberg “final assembly” plant could be just gliders, but still capable of rolling on and off ships. They don’t need to be either “knockdown kits” nor fully assembled automobiles.

I read an article on what’s done at the Tilberg plant. It’s more than I expected — more than just a token few parts — but it’s a lot less than assembling “knockdown kits”.

They ship S/X in containers on container ships, not roros. They qualify as knockdown kits since they don’t have a bunch of parts (batteries, rear wheels including drive units, etc.).

I thought you were gonna say they were finishing building the cars on the boat.

Tesla Factory Ship? Yassir Arafat? Never twice in the Same Port? Tesla Factory Cruise Ship: take a cruise, and watch your car(s)get built!

Power Pack sales by the Megawatt and their GigaWatt project could double profits. They do more than just the Worlds best vehicles you know.

Tesla gets 95% of its income, or more, from selling cars. Panasonic would have to much more than double its battery cell production at Gigafactory 1 for Tesla to be able to get that large an income from selling PowerWalls and PowerPacks.

That certainly isn’t gonna happen this year, if ever.

Right now it’s 20-30GW. Doubling that seams slam duck as european 3 will be served from that factory. Then we have new roadster and electric truck.

Lots of growth even is existing sales channels won’t grow.

I am dying. I may be healthier than the last qtr but the death is coming.

Hang in there for ~12 more years. Around then, global abundance will increase your life span by one year for every subsequent year of living. I suspect that corporations will be similarly affected.

Or, AI will wipe everything out.

The information in the last paragraph of the text of the Shareholder Letter (the outlook) will probably provide a hint for what we might expect to happen in the next few quarters.

What will be the expected combined annual delivery numbers for the Tesla Model S and the Tesla Model X in 2019?

And what about the guidance for the Tesla Model 3 deliveries in 2019?

So what. It is JANUARY.

Kind of hard to make big profits if you’re growing 100% or more in sales and building the SC network and production facilities at the same time, growth that even big companies can only dream of,GM out of Europe ,Ford to follow, both out of Aussie production already, or soon out if not already there, meanwhile Countries are begging Elon to set up shop there, look at China ,they are welcoming Tesla without JV. even wanting to give him Honorary Citizenship.TRUMP? they probably PUT HIM IN JAIL there.

It’s a lot hard for a company 20 times the size to grow at the same rate. If GM grow at Tesla’s rate for a year it would mean other would be going out of business because there is are only so many new cars sales year. GM has 48 plants could you imagine that going to 100 in a year? Granted not all plant assembly cars.

I am unfamiliar with foreign sales, in the US they do get ZEV credit which they won’t be accruing in Q1 but perhaps there is something similar in foreign countries…

Most countries seem to still be offering their citizens incentives. At the corporate level though, I’m not sure what the state of carbon credits are at the international level.

Both Q3 and Q4 (assumed) profitability come with inventory reductions. If Q1 has a “tiny profit” or even a small loss combined with a significant inventory increase because cars are sitting on ships, that sounds like a pretty good quarter to me.

When I look at the order trackers for the US as well as for Europe, it becomes pretty clear, that Tesla is running into a serious demand problem. Q4 will be their last profitable quarter, Q1 and the following quarters Tesla will be back in toss territory, struggling with increasing competition and margin pressure.
If you dont believe, just read Elon Musks last statetment (and keep in mind, that its Musk speaking!)