TSLA Q2'20 Earnings Forecast: $6.20B Revenue & $318M GAAP Profit
I'm kind of tired, and I spent all week working on finishing my S&P 500 blog post, so I'm going to keep this forecast short. Just some brief comments, and the following important precaution.
Although the accuracy of my model has gotten quite good as of late, and I was very close in Q4'19 and also in Q1'20 minus the surprisingly high credits sales, Q2'20 really has a lot of factors that are difficult to forecast:
- Credits sales. We don't know whether the $350M in credits sales in Q1, which were likely partially tied to the FCA deal, are dependent on EU sales volume or not. And if so, to what extent.
- Solar and Energy Storage installations are hard to forecast in the middle of a pandemic.
- Margins on two vehicles in the middle of production ramps (Shanghai M3 and MY) are hard to accurately forecast.
- FSD attach rates were reported to be much higher than usual, but it's hard to know exactly how much higher. There were also incentives/discounts for previous owners to upgrade to full FSD.
- Deferred revenue recognition for stop lights and stop signs.
- Temporary salary reductions due to COVID-19, and halting of stock based compensation.
- How the lock downs impacted service revenue and margins.
- Whether there will be new lumpy expenses related to the CEO compensation package.
Simply put, this quarter is pretty tough to predict, but I've done my best.
Energy
I was surprised to see how bad Energy was in Q1, even though lock downs only affected the very end of the quarter. This spooked me a little, so I've forecasted a very bad quarter for Energy in Q2. Q3 and Q4 should see new all-time records though, thanks to Solar Roof ramp and solar price reductions.
Automotive
Only a small price drop for S+X and a small price increase for M3 in spite of the price cuts in June, because Troy estimated FSD attach rate of ~50% this quarter compared to ~20% in the past. If true, this would add ~$2k to ASPs.
Model Y and Shanghai 3 margins should be very strong. We know the exact number of Shanghai 3 sales thanks to this.
I expect credits sales to most likely drop from $350M, but I've kept this steady nonetheless because I expect FSD deferred revenue and FSD sales to previous owners to more-or-less make up for this. There's also still $100-200M in credits on Tesla's balance sheet that they have to recognize this year, and which they could very well use this quarter.
Income
User "The Accountant" on TMC has a much better grasp than me of how the temporary salary cuts and freezing of stock based compensation will impact OPEX, so I've taken R&D and SG&A expenses from one of his recent posts.
Summary
- Automotive Revenue = $5.54B
- Automotive Sales Gross Margin Excluding Credits = 21.3%
- Automotive Sales Gross Margin Including Credits = 26.5%
- Total Revenue = $6.20B
- Gross Profit = $1.43B
- EBIT = $558M
- GAAP Profit = $318M
- Non-GAAP EPS = $2.59
- Free Cash Flow = $1.09B
All in all, it's looking like strong Shanghai and Model Y margins should probably lead to very strong earnings this week, as long as one of the factors mentioned at the start of this post didn't trip up my model.
Thank you for this excellent analysis as always! As a long term holder over 3 years now, it keeps getting better and better.
ReplyDeleteThank you!
DeleteI expect things will continue to get better for TSLA investors over the next decade :)
Thanks for this... Is there a way to get notifications of updates from you?
ReplyDeleteI think there should now be a subscribe button near the very top that allows you to subscribe to email notifications when I post on this blog.
DeleteAlternatively, you could follow me on Twitter:
https://twitter.com/FrankPeelen
Follow me on TMC Investor forum:
https://teslamotorsclub.com/tmc/members/franksg.108176/
Or follow me or keep an eye out for my posts on Reddit:
https://www.reddit.com/user/Peel7
I'm not super active on Twitter nor Reddit, but I post almost daily on TMC.
Thanks, I followed you on all sources lol
DeleteI have a few more questions if you dont mind.
1. So how close was your report here to actual report? :)
2. Do you have a recommendation where I can study so I can understand reports like yours and tesla's financial releases? I wish I could understand more of it but I just havent learned it yet.
Thanks for your help and reply and blog !
Cool, thanks! :)
DeleteSure.
1) Not that close. After I posted this on TMC, somebody pointed out I made a $60M mistake in calculating FSD revenue. After accounting for this, my revenue and EPS are very close. So close in fact that I got rank #3 out of 660 on estimize.
However, that's very deceiving. I was actually off by a lot in a number of places. I way overestimated automotive revenues, and way underestimated energy revenues. These sort of canceled each other out, and therefore it looks like I was pretty close, but really I wasn't.
I kind of expected this though, because as I mentioned at the start of this blog, this quarter was extremely hard to forecast. Hopefully next quarter I can be closer again like Q1'20 and Q4'19.
2) I'd recommend just listening through the call, and going over the earnings report yourself. You won't understand everything straight away, but over time you can understand more and more, and you can ask questions about things you don't understand in places like TMC and Reddit.
You could also check out some of Khan Academy's economy/accounting courses, if you need help with the basics of interpreting accounting statements and financial data.
You're welcome!
These answers is exactly what I was looking for, thank you so much and looking forward to your future outputs.
DeleteI bought 21 share at1740 new to trading wat to do
ReplyDeleteThat depends on your goals. If you are a trader looking for a quick profit, it should largely depend on what you think will happen after earnings. If you think my forecast is accurate, you should probably hold until after earnings, because the stock is likely to go up. But my forecast could very well be wrong. If Tesla does not post a profit, it'll likely go down after earnings on Wednesday.
DeleteOn the other hand, if you are a long term investor, you should decide what you think the fair value of TSLA stock is. As long as the stock price is below what you think it's worth, you should hold. If the stock price goes above what you think it's worth, you should sell. It's really that simple.
If you're not sure where to start when making your own TSLA price target, consider reading these two posts as a starting point:
https://teslainvestor.blogspot.com/2019/06/my-tesla-investment-thesis-why-tesla-is.html
https://teslainvestor.blogspot.com/2019/12/my-tesla-investment-thesis-20-teslas.html
Well done 👍🏽 sir!
ReplyDeleteI’m a new fan!
Thanks, Regis!
DeleteIf you liked this post, considering checking out my most popular posts:
Investment Strategy:
https://teslainvestor.blogspot.com/2020/05/my-tsla-investment-strategy.html
Investment Theses:
https://teslainvestor.blogspot.com/2019/06/my-tesla-investment-thesis-why-tesla-is.html
https://teslainvestor.blogspot.com/2019/12/my-tesla-investment-thesis-20-teslas.html
You should also be able to access these most popular posts through the menu on the left side of the blog.
Delete👍👍👍 Great Job! For hard work, hope your report comes true,I am more optimistic about Elon himself, He is one of very few overachievers and tries to break his own set expectations, by 2022 setting probe to Mars and by 2024, having Man land there, more over delivering ventilators in time of need that also for free, keep up the good work Elon.
ReplyDeleteWhat do you think about Amazon, as whole tech sector is going down?
Thanks,
Sunny
Thanks, Sunny!
DeleteI agree with you about Elon being an amazing human being. I'm looking forward to what he does for humanity in the coming decades.
I don't know that much about Amazon. The only reason I know this much about Tesla, and am about to write some of the posts in this blog, is because I've spent thousands of hours following and researching Tesla.
Want to hold the shares as long as Elon is around. The guy is THE genius for the last 100 years.
ReplyDeleteI couldn't agree more. I don't plan to sell my shares before 2030.
DeleteAnd thank you for your hard work!
ReplyDeleteYou're welcome!
Deleteu r the heros for all the teslas investors👍👍👍👍👍👍👍👍.
ReplyDeleteall the analyst I read about. u are the BEST. wow u r amazing...
Hahaha, thanks man!! <3
DeleteVery well done! I had $1100 calls that expired on June 17th, worthless. Same July 17th calls were worth $400. A month off and a 100k short, sad. I read your options page, very nice. I'm thinking of doing a straddle on Wednesday, or a reverse iron condor? Any thoughts? Again, thanks for the great insight. Robert
ReplyDeleteThanks, Bob! Unfortunate about your calls.
DeleteIt sounds like these plays you're considering would expire this or next week? I almost never buy options with 1-2 weeks until expiration.
Although, my Q2'20 ER prediction could very well be off by a large margin, I do really have a hard time seeing TSLA not eek out at least a small profit. A profit is never certain, but quite likely in this case imo. Therefore I'm not so sure about the short leg of your straddle/reverse IC right before Wednesday's ER.
I can't predict short term price movements though, so you should do whatever's right for you.
Hi Frank,
ReplyDeleteI've been reading your blogs for a while now and I have to say I am amazed at the level of detail and precision you apply to your fundamental analysis. I bought 60 shares in Tesla @273 last year in a simulation account and have seen the stock price soar since then. Unfortunately, this was in a simulation account, and therefore I've not actually seen any profit. I wanted to use a simulation software for at least twelve months before I came to invest in the market so I could learn the ropes, however I now fear I may have missed the TSLA boat.
I've finally opened a real trading account and I'm ready to start investing around 10k. I feared that I've totally missed out on investing in TSLA now that the price is @1500 however reading your blog about the possible inclusion on the S&P500 has renewed my hope slightly. In short, have I missed the boat, or can I still invest in TSLA considering it's potential? Is it worth waiting for a potential dip in the market later this year once COVID-19 makes a full impact or am I just going to be in an even worse position to buy?
Apologies for the rather lengthy comment, any advice of yours would be very helpful.
Thanks,
Red
Hi Red,
DeleteThanks for the praise on my blog posts! It's always nice to hear they are being appreciated, as I put a lot of work into them.
First of, let me say that no one knows your situation better than you do. I don't know anything about your income level, goals, risk tolerance, etc. So I can't tell you what to do, and the ultimate decision needs to be yours, and one you are comfortable with.
With that being said, if you've read my Investment Theses posts, you're probably aware that I'm still very bullish on TSLA even at $1,500. I think another 10x return from here over the next 10 years is quite possible, and I'm also fairly bullish on TSLA in the short term, because of S&P 500 inclusion and my strong expectations for Q3 and Q4.
So if you want to invest $10k into TSLA, my advice would be to go for it now rather than to wait. Nobody can time the market, and although there could be some sort of macro dip this year to below $1,000, there could not be, or the dip could be from $3,000 to $2,000. Waiting for a good investment opportunity to turn into an even better investment opportunity is generally not a good idea in my opinion.
However, before you put the $10k in TSLA, here are 2 things to keep in mind:
1) Before investing in an individual stock, you should have an idea of what you think it'll be worth in the future. Do you think Tesla will do well and be one of many market leaders in EVs, but do you not believe in autonomy within our lifetimes, and do you think this would lead to a $1T market cap and $5,000 stock price? Then that's your price target for now. Do you think Tesla will dominate multiple trillion $ markets (EVs, robotaxis, energy storage) and be worth $5T and have a $25,000 stock price? Then that's your price target for now. It's important to have an idea of what you think the stock will be worth. If you turn out to be wrong, you can learn from it for the future.
2) TSLA is a very volatile stock. It can go up a lot in a very short period of time, but it can also go down a lot in a very short period of time. If you invest in TSLA today at $1,500, you should do it as a long term investment because you believe in Tesla's growth over the coming years. If you think you're the type who would've gotten scared and sold during dips like June 2019 and March 2020 in spite of your belief in the long term growth, TSLA might not be the right stock for you.
I hope this helps you to make your decision. Good luck!
Frank
Hi Frank, great research, thanks for all the hard work. Do you have a view on the risk reward of LEAPs OTM call (mid 22) given current SP and high level of volatility ? Thanks !
ReplyDeleteI'd recommend you to read my Investment Strategy post:
Deletehttps://teslainvestor.blogspot.com/2020/05/my-tsla-investment-strategy.html#Options
Specifically section 4-4: "The Risk Reward of Call Options"
My current opinion is that they're not great. Stock price would have to go to $4,500+ for any of the Jun'22s to pay off 2x. Although not impossible, I can't say I think it's super likely.
I'm very bullish on TSLA in the short term due to S&P 500 inclusion and wall street expectations for Q3 and Q4 being way too low in my opinion. Therefore, it could make sense to buy Jun'22s as a short term options play with the Jun'22 expiration as a fall back, in case these catalysts don't materialize or macros turn sour.
I personally plan to sell all my options in the next 6 months if the SP reaches $2,500 give or take a few $100.
Also another Question ! Have you done some research on EBIT/earnings multiples of comparable growth companies (AMZN , AAPL...) historically ? Variation in multiple can have a material impact on SP in coming years (IMO your assumption could be conservative in the current FED induced bull market we are seeing), would love to get your views ?!
ReplyDeleteThe same Investment Strategy post:
Deletehttps://teslainvestor.blogspot.com/2020/05/my-tsla-investment-strategy.html#Options
has a section with a comparison of about 10 EBIT multiples of large tech companies. Look for section 4-2: "Make SP Predictions".
I haven't done research on their historical valuations, but I know AMZN was trading at a P/E ratio of ~500 for a while, and then ~200 for a while, before dropping to its current ~100. You can easily look these up by looking at the P/E ratio historical graphs on macrotrends.net.
And yes, the 50x EBIT multiple I often used in the past when buying options will likely be conservative for TSLA, in the near term very much so