In part one of this Streisand Effect series, prompted by the departure of the pseudonymous Montana Skeptic from Twitter, we looked at a discussion of Tesla's gross margin and some of the numbers other automakers add in, which Tesla does not.
In another Seeking Alpha post, Montana Skeptic considered the idea of structural bankruptcy. It is not, we should make very clear, the idea that Tesla could go bust in 2018. Indeed, he wrote that last November that was “still quite dangerous” to sell short the stock of Tesla, while also disclosing a short position via put options.
Instead it concerns the carmaker's reliance on regular infusions of capital from shareholders:
“Structurally bankrupt” means that even after achieving volume Model 3 production, Tesla will continue to hang on as it has hung on since it first was formed: incapable of generating any free cash flow, and therefore utterly dependent on continued capital infusions for its survival.
Such a situation would be a big deal, not just because Elon Musk has said Tesla won't need further capital this year, but because of what production of the Model 3 in high volumes is supposed to represent - not just be a mass market electric vehicle, but one which Tesla will make and sell at a profit. Hence the $60bn valuation of the company, including debt.
The problem is, profits remain elusive. Operating loses for the second quarter, due to be revealed Wednesday, are likely to be in the half a billion dollar ballpark according to the consensus for analyst forecasts.
Montana Skeptic, long before some of the delays and problems with getting to production of 5,000 Model 3 cars per week, had a look at the profit implications and some illustrative forecasts produced by CoverDrive .
Here's an estimate for the fourth quarter of 2018:
(ATP stands for Average Transaction Price, in case you were wondering.)
Note that assumes “Tesla is producing 5,000 Model 3 cars per week, with mature gross margins, and having once again bumped up production of the Model S and Model X”. The company would be lossmaking, on these numbers.
How about assuming Tesla sells 100,000 Model 3 cars in the quarter, about 8,000 a week? Profits still a nope:
Or instead keep the lower production rate, but assume a much higher gross margin. Again, no:
Clearly this is a simple model, and note that it assumes a much lower ticket price for the Model 3 than would be suggested by Tesla's strategy so far, which is to sell higher spec versions than the long promised $35,000 mass-market vehicle. Gross margins may be a higher than 25 per cent however, if a recent teardown of the car by industry veteran Sandy Munro is anything to go by.
Still, the final estimate there was for fourth quarter operating income of $24m, not far from the analyst consensus of about $30m, although note the median of 10 forecasts is still for modest losses, according to Bloomberg.
Wall Street, meanwhile, does expect more substantial profits in 2019, and it is possible Tesla will find ways to trim operating expenses and conserve cash, such that another injection of funds from shareholders is avoided this year. That would be a far better response to shortsellers than calling their bosses to complain, we suspect.
Investors will anyway have a better sense after the second quarter of the way costs are going.
On that note, we'd also flag up one number to keep an eye out for in the figures, after CoverDrive highlighted something curious about Tesla's China sales this week.
For six quarters in a row, revenues from China have been steady, at around half a billion, ranging from $463.6m, to $563.6m:
Although, maybe it just stands out because once you see a figure in one place, you start to notice it everywhere .
Related Links: Je suis Montana Skeptic [Update] - FT Alphaville A brief history of Tesla and the number 500,000 - FT Alphaville