Tesla Q3 Revenue, EPS, & Delivery Numbers: Estimates vs Reality

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When companies report earnings, the financial news mentions how the company’s revenue and earnings per Share (EPS) performed against professional estimates. If a company beats both, the stock price will usually go higher. And if they miss both, the stock price will go the opposite way, lower. If either misses, financial analysts will ask management questions on the conference call to get a better idea of how the underlying business is doing.

Estimize.com is a site that tracks the numbers for professional financial analysts. One of the special things about this site is that ordinary investors can also add their estimates for a variety of economic indicators and companies. I added my estimates for Tesla starting with Q2 2018. Estimize has a great feature where you can track how your predictions turned out against reality in some neat charts. For this article, I wanted to compare my estimates for Tesla revenue and EPS in Q3 2018 against the current consensus estimates.

Financial reporting is a dry subject. It’s so dry that just reading the words “financial reporting” almost put me to sleep. To break up the sections, I am naming each section according to books from one of my favorite science fiction authors, Douglas Adams.

The Hitchhiker’s Guide to the Galaxy*

Every great trilogy (*technically, this series is not a trilogy) has to have a beginning. Our story starts here with Troy’s/Teslike’s “Model 3 Order Tracker” spreadsheet. Troy is the subject of a few articles Zach recently wrote. There are great write-ups here on CleanTechnica analyzing the spreadsheet, and we’ll have more in weeks to come. Troy has taken the time to track estimated Q3 production, delivery, and ASP for the Model 3 based on detailed user surveys. Troy created a separate sheet to track Q3 production and delivery for Model S and X. His accuracy on production the last two quarters has ranged between 96% and 98%. This gives him a lot of credibility for forecasting Q3 numbers.

As of August 31, 2018, these were Troy’s estimates for Model 3 production, deliveries, and ASP for Q3 2018:

Table 1 – Model 3 2018 Q3 numbers from Troy’s sheet

Q3 Estimates Production Deliveries Average Selling Price
Model 3 51,821 55,821 $59,432

Troy also includes Model 3 average selling prices for prior quarters on the “Survey” tab. These are $55,925 and $55,424 for 2018 Q1 and Q2.

One of the pieces I was missing before when I created my original model, which became “Vijay’s SimTesla Game,” was detailed ASP information. I used Troy’s numbers and some algebra to solve for the Model S and X ASP over the last four quarters. I will spare all of you the math. I excluded ZEV credits from revenue to better reflect Model S / X ASP numbers.

Table 2 – Estimated ASP by quarter and model

Model 3 estimated ASP Model S / X estimated ASP
2017 Q3 $55,674 $90,679
2017 Q4 $55,674 $85,741
2018 Q1 $55,925 ** $102,105
2018 Q2 $55,424 ** $104,627

** From Troy’s sheet. Thanks, Troy!

For calculating 2017 Q3 and Q4 Model 3 average selling prices, I just took an average of 2018 Q1 and 2018 Q2.

Why is this important? I wanted to make sure I have good numbers for estimating 2018 Q3 revenue. That’s complicated by the fact that all three cars had large numbers of vehicles in transit last quarter. But I’ll explain why the exact numbers used are not important later on.

I ran six different scenarios for Model S & X ASP and Model 3 margins using my version of the SimTesla game.

One set includes low Model S & X average selling prices. The other set includes high Model S & X average selling prices.

For each set, I estimated Model 3 gross margins at 13%, 15%, and 17%. The estimated earnings per share (EPS) for each scenario are in Table 3. This is based on 27,360 Model S & X delivered and 55,821 Model 3s delivered in Q3. I repeated the same exercise for Q4 2018.

Table 3 – My estimates for earnings per share under various scenarios for 2018 Q3

2018 Q3 EPS estimates Low Model S / X ASP set High Model S / X ASP set
13% Model Gross Margin -$0.52 $0.50
15% Model 3 Gross Margin -$0.13 $0.81
17% Model 3 Gross Margin $0.26 $1.12

Table 4 – My estimates for earnings under various scenarios for 2018 Q4

2018 Q4 EPS estimates Low Model SX ASP High Model SX ASP
18% Model Gross Margin $0.91 $1.78
20% Model 3 Gross Margin $1.31 $2.18
22% Model 3 Gross Margin $1.72 $2.59

The Restaurant at the End of the Universe*

(*Still not a trilogy. It’s part 2 of 6 — how is that a trilogy? I guess when the first three books came out it was a trilogy. Even Mr. Adams made fun of the books not meeting the definition of a trilogy with the fourth and fifth books.)

Why did I say the exact financial numbers don’t matter? To paraphrase myself:

It is the actual financial numbers juxtaposed against estimated financial numbers that matters. And in this sense, Tesla is on track to blow out the estimated financial numbers. That’s good for Tesla (the company) short and long term. It will give the company a lot of credibility with the public, credibility that it is able to execute.

Since April 13, 2018, Elon has promised profitability and cash-flow-positive financial numbers by the end of the year. Professional analysts did not take him seriously. This is even after making a similar prediction back in January 2015, but a little less specific about the timeframe.

With so many possibilities for potential profit, and things changing daily, it’s foolish to make a prediction on where Tesla ends up. So, consider me a bit foolish. These numbers will be revised once Q3 delivery numbers drop in October. I am going with $0.01 cent earnings per share and $6.612 billion in revenue, along with 83,000 in deliveries overall.

But let me back up for a moment. As I mentioned in the introduction, Estimize tracks earnings per share (EPS), revenue, and deliveries for Tesla. In the short run, it is meaningless. We know production is increasing, factories will be built, and Tesla will expand. But the trend of things is important. The timing of when things happen is even more important.

Above is the current Estimize consensus and range for Q3. Notice how wide the estimates are. The Estimize consensus is -$0.44 in EPS (blue line). Actual Tesla numbers are the green line. Let’s add in Wall Street estimates (gray line).

You’ll see that Estimize and Wall Street estimates tend to follow each other closely. On such a volatile company as Tesla, most of these estimates tend to be a miss. You can see how far the blue and black lines are from the green lines, what Tesla actually reported. Below are mine for comparison. For EPS in 2018 Q2, I was very pessimistic for reasons I will explain.

Remember this table?

2018 Q3 EPS estimates Low Model S / X ASP set High Model S / X ASP set
13% Model Gross Margin -$0.52 $0.50
15% Model 3 Gross Margin -$0.13 $0.81
17% Model 3 Gross Margin $0.26 $1.12

We can see the Estimize and Wall Street crowd are modeling for 13% Model 3 Gross Margin and low Model S / X ASP (-$0.58). Five of the six estimates from my simple sample beat the expected EPS. This is a small set of scenarios and is subject to the Law of Small Numbers. Even professionals are not immune from the Law of Small Numbers, and I am far from a professional. This is why I urge everyone to add estimates to Estimize. The larger the estimate sample size, the better idea we have of what people are thinking. Currently, there are 155 estimates for Q3.

Keep in mind that 155 estimates control the thinking of whether Tesla is doing well or not doing well, which is blasted on the financial news. 155 estimates direct the value of billions in invested dollars going up or down. If you own any stock, it’s probably in your best interest to add an estimate.

My thinking for my Q2 Estimize numbers was, if enough people had low estimates, Tesla has a better chance of beating them, which would help the stock. The stock was in a dangerous place, confidence wise, during the second quarter.

This has a psychological basis. It’s better to lead with good characteristics, followed by bad. People will think better of you. If you take the same characteristics, and start with bad, followed by good, the impression is already formed and they will think badly of you. Or, similarly, it’s better to have actual good news against expectations for bad news when it comes to company’s stock. This was explored in much detail in Thinking Fast, Thinking Slow by Nobel Prize winning author Dr. Daniel Kahneman. Here’s an example from page 82, under the chapter “A Machine for Jumping to Conclusions:”

“Alan: intelligent-industrious-impulsive-critical-stubborn-envious

“Ben: envious-stubborn-critical-impulsive-industrious-intelligent”

Dr. Kahneman writes, “If you are like most of us, you viewed Alan more favorably than Ben. The initial traits in the list change the very meaning of the traits that appear later. The stubbornness of an intelligent person is seen as likely to be justified and may actually evoke respect, but intelligence in an envious and stubborn person makes him more dangerous.” Such are the foibles of the human mind, which is subject to a variety of biases. All six characteristics are the same, just reversed for Alan and Ben.

Life, the Universe and Everything

I liked the third book in the trilogy. For some reason, though, I don’t remember much about it. I think this is where Earth was created again to solve the ultimate answer. It’s also a good place to take a mental break right here.

Below are the Estimize charts for revenue. Actual results are green, Estimize is in blue, Wall Street grey, and my own estimates purple.

Wall Street has missed on revenue the last two quarters. It has been too pessimistic. Ordinary folks are even more pessimistic than Wall Street when it comes to Tesla’s revenue for Q3 if we use the Estimize mean as a guide (estimating Q3 revenue at $5.3 billion). The stage is set for a beat. Apple under Steve Jobs notoriously always sandbagged on company guidance for earnings and revenue. If Tesla is above 75% of estimates, that means 75% of people were too pessimistic. They will have to re-evaluate, and the end result is most of the people making those estimates will be more favorable to Tesla. Since people know this is how it works, they will try to get ahead quickly if Tesla beats expectations and the stock price will increase as people try to quickly buy more shares.

My gut feeling is Tesla’s estimates for EPS, revenue, and deliveries are too low. We will see more people add estimates once the delivery estimates come out in October.

One thing I noticed last quarter on Estimize is my individual estimates were all over the place compared to actual financial numbers, but I was solidly close on revenue. Estimize awarded me 20 points for my revenue efforts for having a revenue error rate of just 1.4%.

To repeat what I said earlier:

It is the actual financial numbers juxtaposed against estimated financial numbers that matters. And in this sense, Tesla is on track to blow out the estimated financial numbers. That’s good for Tesla (the company) in the short and long term. It will give the company a lot of credibility with the public, credibility that it is able to execute.

I will add that if people have confidence Tesla will execute and will stick around, it’s not profitable to short and it is profitable to go long the stock.

That’s why companies that are close to bankruptcy and turn around the business see their stock prices shoot higher. The numbers may stink objectively, but the shift in confidence is what matters. The market is always right, as the eminent Marty Armstrong always says. Tesla will prove many critics wrong in Q3 and even more in Q4.

So Long, and Thanks for All the Fish

This is the fourth book in the trilogy. Arthur gets a girlfriend. Marvin makes an appearance. It’s a happy book.

This would be a good time to bring up Q4 estimates. Q4 estimates for EPS and Revenue from the usual Estimize and Wall Street crowd don’t show much growth from Q3. The reasons why I am optimistic for Q4 is higher deliveries, more AWD and Performance orders, and 20% estimated gross margin for Model 3. In all of my situations for Q4 they are strongly positive earnings, and above what Estimize and Wall Street have estimated. Revenue also moves sharply higher. We can see from Troy’s numbers the Average Selling Price for Model 3 in Q4 is well above Q3, due to the shift to AWD and Performance models.

Mostly Harmless

We’ve gotten to the fifth book in the trilogy. If you liked book four, stop here. This book is depressing. Mr. Adams was in a bad place in his life. But he does tie everything together neatly with dark humor.

I urge you, dear reader, to do two things. First, download our Long-term Tesla sheet, create your numbers, and add them to Estimize. It’s mostly harmless. And second, read Thinking Fast, Thinking Slow. It’s easier to observe other people’s biases at the water cooler than finding your own.

And Another Thing

Seriously, I just found out this was the sixth book in the “trilogy.” It seems to have a happy ending and reverses book five. I have to go read it now. Also, it was not written by Mr. Adams and was written posthumously after his death.

If you thought “And Another Thing” meant I was adding something relevant to the article, sorry, you were wrong, unless the following statement matters to you.

The above references an opinion and is for information purposes only.  It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

I am currently long Tesla shares and Tesla bull call spreads.

Thanks for reading! I did my best to ease the cognitive load of reading this article. I hope you find it agreeable. I could have used Desdemona as a font. Dr. Kahneman did say a poor font leads to better attention when analyzing. But 10 pages typed in Word using that font would be too much.

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