When are Q4 results coming?
Bubba2000 - 2k in delivery at $100k each is $200M. Assuming there are 1k-2k cars in delivery on trucks or sitting in delivery centers is not unreasonable. That is a potential big chunk right there. The inefficiencies of 70 hrs work weeks etc are not likely in mfg, but I think mainly in logistics.
I think a large contributor to the cash outflows in Q4 came from all the 1500 sig reservation payment liabilities (40k per) coming off the books. Added to the 900 production reservation payments (5k per), a total of 64.5m of cash outflows resulted. Although revenues were 306m, these res payments cut in substantially. With the craziness of cancelations (and re-reserving) due to the price hike and Broder debacle, I feel the reservation payment increase post all the awards didn't offset the out flowing cash for Q4. ( add the overtime and other challenges stated). So, they cut into cash and cash equivalents deeper then they probably wanted to, although some people didn't think they would have anything near 200m going into 2013.
Now that the sigs are cleared off the books, substantially less cash outflows attributed to reservation payments liabilities will happen in Q1. Only 5k per car sold will come off (I anticipate they will sell 4.5k), so 22.5m instead of 64.5m this quarter. Add in the new reservations, which could turn out to be over 5k, the there might be a net in-flow of cash which might not have been the case in Q4. I'm thinking they will use far less cash and cash equivalents in Q1, so they will not have to worry about raising more money in Q2.
Euro sigs and 40 production starting up might challenge cash flows in Q2. However, this might be the time, maybe in the last month or so of Q4, Tesla decides to raise production to 500/week.
It will be a definite work of art through how they cut costs, work reservation payments, time production increases throughout the year in order to achieve profitability and maintain enough cash.
I think they will do it and demonstrate to investors viability as a car company. In 2014, I expect a substantial follow on offering that could potentially raise 500m-1b and we could see the mythic geniii come to market sooner then expected. Since I feel the stock is already priced on anticipation of mass production geniii, I don't think the stock price rise will not get slowed any by the offer, might even accelerate it.
Correction... I meant an increase to production to 500/week by last month of Q2...
Clarification... I think the current stock price is proportionate to the potential of geniii actually making it to market. As that potential becomes closer to becoming realized, the stock price will rise. When geniii begins production at 400k/year, price will align more closely with financials... Until the next big objective Esla announces...
For every cash flow impact of a reservation that comes off the books (?? moves from liability to revenue) there is the balance owing which is received on delivery. A delivery is a strong net positive cash flow event.
Brian, once rev rec'd, the res payments are accounted as operating expense... The cost of revenue...
?? When I learned accounting, reservation payments did not appear on the income statement at all, and in any case they must appear as debits in the bank account and credits somewhere else. They cannot be DR both in bank and expenses. That is bookkeeping heresy.
Res panets are a current liability. Tesla uses much of the res payments as working capital. Working capital is used in operations. Once car is sold and delivered, revenue is recognized. At that time, the spent money from the res payment is accounted for as cost of revenue in operations. So if they rev rec 100k from a sale, 5k of that is immediately recognized as cost of revenue since it was already spent become delivery.
Overall, most of 100m in res payment since res payment started had been used before Q4 production ramp. Therefore, much of that hit the bottom line already with the Sigs going out. This is why I feel there is strong support for cost reductions in this portion of cost of revenue. Some people can't see how they will be breakeven or slightly profitable and this is just of those parts they are overlooking. The clearing of the Sigs, streamlining production through reducing labor costs and rework, decreasing r&d, are the biggest areas they will do it.
If they turn a small profit, I think they won't drop below their current cash level. Maybe increase on scheduled investment returns going into Q2. I feel Q2 is going to be the demonstration of best financial management skills seen in a while... Get trough Q2, they've proven they will thrive for a long time. Q2 is the dragon thruster challenge of tesla. If they can hammer through it, cash on hand will be in a great place. Cash on hand in a great place, more investors will buy in...
How they batch produce the 40s and counterbalance the fall in revenue per unit with production increase to 500/week will be fascinating to watch...
My understanding is that an automated factory like Tesla takes a lot of effort to get working efficiently. The supply chain has to work like clockwork so that production does not slowdown. Enough inventory has to be at hand to provide a buffer. May be they will have to implement SAP, which is a challenge into itself.
The manufacturing process itself needs to be tuned up. The dies, presses, welding robots, assembly robots, painting, final assembly, etc all need to be continuously adjusted. Make one adjustment and something goes off tolerance. Distortions due to the temperature, welding, etc have to be incrementally adjusted. Same for the computer controlled machine tools that make the motors, etc. Follow Deming principles, etc.
I imagine they spend a lot of hours and effort tuning the whole process and reduce rework, inventory shortages and pile ups. Tesla has experienced people from Toyota, etc working for them. Due to the simple design of Model S, huge economies of scale are possible.
I have been reading about Graphene tech application in Li-Ion batteries. Promising, but this kind of stuff will take years. First use will be in smart phones or even the military. GenIII needs disruptive battery tech to make it affordable.
@Bubba2000 - just curious... are you working in production and did you tour the factory?
A small company like Tesla needs to maintain tight inventory controls. Sometimes it is difficult if the components are custom made given the low volumes. Worse if they are made in far away countries. Tesla's inventory is $269M. If there were no cars involved, and the BOM (bill of materials) is $50,000, then the inventory is good for 5,380 cars - more than 3 months of production. Quite high.
If they had 2 weeks of cars almost finished, but not shipped (800 cars @100,000), then the remaining inventory is good for 3,780 cars. Still hi, but ok given the size of the company, the product, etc.
Hopefully, they will get their logistics right. Use off the shelf parts like tires that can be sourced locally. Those 21" rims and tires must be custom, that is why they are so expensive. They will probably simply the logistics with time. Some items like the inverter, flat panel/tablet got to be custom. I wonder who makes them? GE? Some Japanese company? Korean? That is some precision equipment. They probably have to buy a whole bunch of them to get a volume discount.
Batteries are commodities, but Tesla has a special kind and they have to be shipped by container size. Big $$$.
Just comments on my part trying to understand the business.
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