1、China EVs:Sales Strong,StocksWeak?!ResearchReinventedSmartkarma is a globalinvestment research networkthat brings togetherindependent Insight Providers,institutional investors,andcorporate investor relationsprofessionals and management.At Smartkarma,We Do Things DifferentlyWe leverage the online eco

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6、Insight Providers onSmartkarma.We currently have over 100 such curated Insight Providerspublishing on the platform,ranging from one-person operations to teams ofmultiple members around the world.In the following pages,you will be able to see for yourself the result of ourefforts.In the meantime,we w

7、ill be busy bringing you more excitingdevelopments over the course of the year!2Table of Contents1.Meidong:Insights from Call with the Management for H1 2022.42.EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022.153.BYD(1211):Respectable Result.234.Tesla Q3 Earnings Preview-Beat

8、Widely Expected Due to Musks Twitter Deal.285.Teslas Q3 Results Disappoint for the First Time Since Q4 2020.353Sameer TanejaEquity,Bottom-up AnalystChina MeiDong Auto|Equity Bottom-UpMeidong:Insights fromCall with theManagement for H12022By Sameer Taneja|03 Sep 2022EXECUTIVE SUMMARYChina MeiDong Aut

9、o(1268 HK)presents an excellent investmentopportunity,trading at 13.3x/8.1x FY22/23e,post street estimaterevisions downwards with a dividend yield of 6.0%/10%(assuming an80%payout).China MeiDong Auto(1268 HK)s integration of Starchase isprogressing better than we expected,with metrics on inventorydr

10、amatically improving.We believe the management will focus onaftersales now.The company will join the EV bandwagon by collaborating on aftersaleswith players having operational(not Unancial)difUculties performingthis service,presenting a good opportunity for the company.DETAILIn this insight,we will

11、focus on:China MeiDong Auto(1268 HK)s integration of Starchase and thepotential for substantially improving there.Where does the management stand on the EV revolution in China?The management view capital allocation.We cover buybacks,dividends,repurchases of the bond,and acquisitions.Why we like Chin

12、a MeiDong Auto(1268 HK)and why we think it willcontinue to outperform its peers despite the signiUcant valuationpremium it commands.Meidong:Insights from Call with the Management for H1 2022Sameer Taneja4Meidong H1 2022,down 10%YoY adjusted forone-offsMeidongs H1 2022 10%YoY down performance of 2022

13、(adjusted for one-offs;else,the PAT was down 35%YoY)was quite a remarkable featconsidering the difUculty in the market in H1.Source:Company Presentation H1 2022,Aggregate of Adjusted Non-operatingitems 133 mn RMB.Minority Interest has been netted out.Total revenue increased by 7.2%YoY,despite mergin

14、g the Starchase revenue.We believe that the slowdown was due to the lockdowns.Meidong:Insights from Call with the Management for H1 2022Sameer Taneja5Source:Company Presentation H1 2022Inventory days soared from 6 to 22 owing to the addition of Starchase(whichhad high inventory)and the increase in s

15、tock due to the lockdowns.Source:Company,Internal CalculationsWe understand that inventory days of Starchase Porsche stores are currentlydown to 20 days from 45 at the time of acquisition(vs.Meidong stores withten days).We believe the management is targeting bringing overallinventory days back down

16、to ten days for the company and are almost donewith increasing cash Vows on that front.Source:Company,Internal CalculationsMeidong:Insights from Call with the Management for H1 2022Sameer Taneja6Progress on Integration of StarchaseWe believe the integration of Starchase is on track,and the company c

17、anpotentially double the proUts of this entity to 580 mn RMB for the sevendealerships over the next two years by improving:Aftersales proportion.Aftersales margins.Working Capital.Sales per store.We believe the company has almost addressed bringing the inventory levelsof Starchase down and will now

18、start working on improving the aftersalesproportion.Source:Company,pro6ts in mn RMBMeidong:Insights from Call with the Management for H1 2022Sameer Taneja7Source:CompanyWe believe there is massive scope to improve the aftersales as%of sales byat least 200-300 bps.This could add at least 250-300 mn R

19、MB of incrementalrevenue and,at gross margins of 50%,add around 150 mn RMB of grossproUt to the company.We believe these efUciencies could add 8-10%overour estimated earnings to the bottom line over the next two years.Source:CompanyAn exciting slide shows how aggressive the management has been inimp

20、roving the metrics of Starchase.Source:Company presentation H1 2022Meidong:Insights from Call with the Management for H1 2022Sameer Taneja8Management Stance on EV RevolutionTo say that there is a revolution in China would be understating things.Ledby BYD,Tesla,newbies(Li,Xiaopeng,and Nio),and the tr

21、aditional playersGeely and Greatwall,competitive EV product is Vooding the market,leadingto 25%EV penetration in the market.Source:Cleantechnica,Inside EVS,BloombergLets face it,over the last 7-8 months,while sales have become stratospheric,BMW,Toyota,and Lexus havent found their feet while competin

22、g in thismarket.The management has insulated themselves to a certain extent on this bybecoming more Porsche-heavy in terms of their sales by revenue.Meidong:Insights from Call with the Management for H1 2022Sameer Taneja9Source:Company presentation H1 2022The company plans to collaborate with an EV

23、OEM to provide standaloneafter-sales services.Recently the company has shut down its Hyundai storeand is using the premises to focus on providing after-sales services to one ofthe newer EV OEMs.The management will focus its energy on either acquiring dealerships orsetting up its new dealership pipel

24、ine to cater to companies that are moreaggressive with their EV product lineup.For the limited data on EVs so far,the company stated aftersales have amuch lower differential than initially feared by the market.Source:Company presentation H1 2022Meidong:Insights from Call with the Management for H1 2

25、022Sameer Taneja10Management Views on Capital AllocationIn our conversation with the management,they elaborated their views on allaspects of capital allocation:BuybacksWe have observed that Zhongsheng Group(881 HK)and China YongdaAutomobile Services Hldg(3669 HK)have commenced piecemeal buybacksand

26、asked for the views of the management on the same.To date,bothcompanies have repurchased 0.05%of outstanding shares.ZhongshengYongdaMeidong:Insights from Call with the Management for H1 2022Sameer Taneja11The management commented that if they did a buyback,they would preferto announce one in size,fa

27、iling which they would return capital toshareholders as dividends.DividendsWe believe going forward;the management will return cash to theshareholders in the form of dividends and see the company return at least80%of the earnings as dividends.Source:Company presentation H1 2022Other Options-Bond Buy

28、back andAcquisitionsAnother area the company is currently evaluating is the repurchase of itsconvertible bond.In addition,we cannot rule out further acquisitions as thelandscape seems more favorable.We believe the company will get more deals where:PEs will be far lower than the company paid for Star

29、chase(14x PE-trailing).The company will overlay the EV strategy of the OEMs over and abovethe cheap valuations.Continue looking for low-hanging fruit on acquisitions(like aftersales,SG&A improvement,etc.)Meidong:Insights from Call with the Management for H1 2022Sameer Taneja12We Like MeidongChina Me

30、iDong Auto(1268 HK)is a conservative company in making bigdecisions but is highly aggressive in how it optimizes operations tomaximize shareholder beneUt.Based on our earnings,the company trades at 13.5x PE FY22.While themanagement sounded cautious on H2 2022(which is prudent),everythingwe took away

31、 indicated things are improving on the ground for them.12/18a12/19a12/20a12/21a12/22e12/23eRevenue11,06716,21020,20723,57730,29939,107COGS-9,994-14,652-18,172-20,806-26,879-33,904Gross Income1,0731,5582,0352,7713,4205,202SG&A-703-874-985-1,320-1,636-2,112Operating Income3706831,0501,4511,7843,090Int

32、erest Income91122213436Interest Expense-63-123-137-133-266-403Other211266PBT4607141,0091,5651,7632,989Tax-128-200-282-399-502-844Associates3Minority Interest-1-7-20-48-38-64Net Income3635517511,1661,2852,161P/E40.428.122.114.313.38.0EV/EBITDA33.718.512.59.19.05.2P/B10.89.25.24.

33、33.53.3Yield(%)1.0%1.9%2.8%6.2%6.0%10.0%Source:Company,Internal CalculationsWe understand that competitors are trading cheaper in this environment,with Zhongsheng Group(881 HK)at 9-10 x PE and China Yongda AutomobileServices Hldg(3669 HK)at 5.5-6x PE FY22e.Still,we believe in thecompanys superior ex

34、ecution over peers,which helps stand out over time.We have elaborated on this ad nauseam in our insight China Meidong:Backthe Porsche at 20 HKD.We believe the stock will rerate to a 15x multiple once the dust settles andChinas macro environment improves slightly.RisksThe underperformance of BMW and

35、Lexus as incumbents losemarketshare to newer EV players in the 300,000-500,000 RMB ticketspace.Chinas property continues to weigh on the economy affectingconsumption.Meidong:Insights from Call with the Management for H1 2022Sameer Taneja13Disclosure&CertiEcationI/We have position(s)in one or more of

36、 the securities referenced in this insightViews expressed in this insight accurately reVects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material information.To the be

37、st of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any speciUc opinion on the securities referenced thereinI/We have signed the Insight Provi

38、der Agreement and this insight does not violate any of the terms speciUed therein.Sameer Taneja(01 Sep 2022)Meidong:Insights from Call with the Management for H1 2022Sameer Taneja14Sameer TanejaEquity,Bottom-up AnalystEva Precision Industrial Holdings|Equity Bottom-UpEVA Precision:PoorMans Tesla/EV

39、Play/Onwards and Upwardsfrom H1 2022By Sameer Taneja|14 Sep 2022EXECUTIVE SUMMARYEva Precision Industrial Holdings(838 HK)is a beneUciary of EVpenetration globally and in China,trading at 9.4x/5.6x FY22/23e and3.2%/5.3%dividend yield(30%payout ratio).H1 2022 was groundbreaking for the company as it

40、commencedstrategic cooperation with BYD(1211 HK)on products and baggedorders from Huwaei and Tesla,with more coming in H2.There is additional room for buybacks as the stock price is 2HKD andthe company only completed 3-4%of its 200 mn HKD buyback.DETAILH1 2022:Slight Disappointment Due toCOVID Lockd

41、own But Trend GoodWe believe H1 2022 was highly encouraging as revenue grew 23.2%,andproUts were up 51%YoY.The result was below our expectations due to thelockdown,but we believe the company will gain ground on its trend in H2.EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sam

42、eer Taneja15Source:Company 6lings,Internal Estimates for H2 2022eThe lockdown created some pent-up demand for EVs,resulting in salescoming back.We expect the company to experience a rebound in its marginsand sales for H2 2022.EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Same

43、er Taneja16Source:Company 6lings,Internal Estimates for H2 2022eYTD Groundbreaking for Orders and StrategicCooperation with BYDH1 and Q3 have been groundbreaking for the orders from Huawei and Tesla,in addition to strategic cooperation with BYD.TESLAThe Tesla Motors(TSLA US)order was the most recent

44、(yesterday)andworks out to 140 mn HKD a year(total order size 700 mn HKD to commencefrom Q2 and Q3 2023).This is already in addition to the Model 3 and Yorders the company is executing worth 1.8 bn HKD over Uve years.EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sameer Taneja

45、17Source:Company 6lingsBYDThe cooperation recently announced with BYD is also extremely exciting.Webelieve it could be a precursor to orders from the company once things workout.The company delivered 200,000 sets of parts to BYDs factory.BYD istransporting mold and raw materials from their factories

46、 to the EVA Wuhanfactory.The contract Unalization has not been completed.EVA is nowcharging BYD a 10%processing fee.The speciUc volume/value of BYDsupcoming orders cannot be accurately calculated.EVA hopes to cooperatewith BYD in mold development and raw material procurement,bringingmore income to E

47、VA.Source:Company 6lingsHUAWEIThe announcement from Huawei was also a positive for the stock,which wasretraced shortly after its H1 results turned out to be disappointing comparedto the streets expectations.EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sameer Taneja18Source:C

48、ompany 6lingsGUNNING FOR TESLA SHANGHAI BUSINESS:FUJI ACQUISITIONWe believe the acquisition of the Fuji business is a strategic attempt to havea facility in Shanghai to gun for Tesla Motors(TSLA US)China business sinceits relationship with the company is moving from strength to strength.EVA Precisio

49、n:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sameer Taneja19The Fuji plant was acquired at 62 mn RMB and has net assets of 260 mnRMB,including 200 mn RMB cash.The entity will also provide the companywith 300 mn USD orders spread over three years.We believe the companywill have certain o

50、bligations to fulUll,like the upgradation of the plant andseverance for employees,which will equate to 100 mn RMB.The plant is notloss-making.It broke even last year and,in good years,was reasonablyproUtable.The customer list for the company now looks fancy with the likes ofSource:Company Presentati

51、on H1 2022Room for Additional BuybacksIn our previous insight EVA Precision 838 HK:Play on EV Market Growth,wehighlighted the companys announcement to commence a buyback in Aprilthis year.EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sameer Taneja20So far,the company has only

52、 purchased 5.5 mn shares,and we believe wehave completed a fraction of the buyback amount at 3-4%.We believe thebuyback will increase the founders shareholding,who currently hold 44.8%of the company.Source:Company Presentation H1 2022CONTINUE TO LIKE EVA CATALYST FROMORDERS AND EXECUTIONEVA PRECISIO

53、N12/19a12/20a12/21a12/22e12/23eRevenue3,7474,0085,1096,2847,855COGS-2,982-3,270-4,096-5,089-6,205Gross Income7657381,0131,1951,649SG&A-678-700-821-911-1,178Operating Income8738192284471Interest Income1511131315Interest Expense-55-43-28-30-31Other33-33305PBT803180297460Tax-26-2-25-45-69Associates-2-1

54、6000EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sameer Taneja21Minority Interest00000Net Income52-P/E41.4-139.013.88.75.6EV/EBITDA9.410.26.25.33.7P/B0.840.830.790.740.68Yield2.8%0.0%2.1%3.5%5.4%Source:Company 6lings,Internal EstimatesRisksFailure to win bids and

55、execute.Raw material cost inDation.In 2021 raw material was 62%of sales,up from 57%in 2020.The company passes a portion of the raw materialcosts on but also beneUts from operating leverage as it scales revenueup from its existing low capacity utilization.Key customers like Great Wall Motor(2333 HK)a

56、nd Lucid Group(LCIDUS)delay launches or cannot ramp volumes for their products.The company has a propensity to over-guide even though the growthtrajectory is very positive.This is discomforting to investors in thestock in the short term.Disclosure&CertiEcationI/We have position(s)in one or more of t

57、he securities referenced in this insightViews expressed in this insight accurately reVects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material information.To the best

58、 of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any speciUc opinion on the securities referenced thereinI/We have signed the Insight Provide

59、r Agreement and this insight does not violate any of the terms speciUed therein.Sameer Taneja(08 Sep 2022)EVA Precision:Poor Mans Tesla/EV Play/Onwards and Upwards from H1 2022Sameer Taneja22Henry SoediarkoAsian Insight Provider-Actionable ideasBYD|Equity Bottom-UpBYD(1211):Respectable ResultBy Henr

60、y Soediarko|13 Oct 2022EXECUTIVE SUMMARYBYD(1211 HK)has recorded a more respectable result this yearcompared to the peers such as Tesla,Nio,and Xpeng.Overseas sales could be the next growth engine if the domestic marketsales may stall.The price increase early this year to the customers did not deter

61、 thecompanys growth rate which indicates its pricing power.DETAILWarren Buffet sold downBYD(1211 HK)s share price was sold off around 42%since the news brokethat Berkshire is selling some of its holdings after sitting on around 28x IRRover 15 years of investment.It was trading at 280 x PER when Berk

62、shire soldand currently it is trading at 90 x PER due to the sell-off as well as theearnings growth during 1H 22.The selling pressure may not be over soonconsidering the challenging macro condition and some rumors thatBerkshire may sell all of its holdings but BYD has been producing superiorsales gr

63、owth without sacriUcing much margin thus Berkshire may just wantto hang on to its remaining holding.MonthliesBYD monthly sales have been at a triple-digit growth rate for 2022 so farwhile XPeng(9868 HK)and NIO Inc(9866 HK)have been mid-double-digiton average which highlights the point that both of B

64、YDs operationalcapabilities and product demands are above Xpeng and Nio.Aug-22Jul-22Jun-22May-22Apr-22Mar-22Feb-22Jan-22AverageBYD183%224%226%281%304%416%668%314%327%Xpeng17%19%76%78%75%202%180%115%95%NIO82%27%60%5%-29%38%10%34%28%BYD(1211):Respectable ResultHenry Soediarko23source:companiesChinas a

65、uto growth sales in September slowed and some people took it as asign that softening demand emerge although that does not seem to be thecase with the top 3 Chinese EV makers as their sales are stable throughoutthe year.BYDs sales have increased from January to Aug,from 91,000 to174000 units in Aug w

66、hile Xpengs January sales were just shy of 13,000units and ended Aug with 8500 units.Similarly,with NIO Januarys saleswere 9600 and Aug was 10,000 units.source:companies,analystComparing to the top global EV maker such as Tesla Motors(TSLAUS)whose growth this year has been limited to double-digit ea

67、ch quarterwhile BYDs triple-digit.Q3 22Q2 22Q1 222Tesla42%27%68%BYD180%264%428%source:companies,analystTesla had factory upgrades in China that affected its growth rate this yearbut the reality is that BYD grows very fast as its target market is bigger thanTesla which focuses on the higher-end secti

68、on of EVs.BYDs NEV market share was 24.7%,an increment of 7.5%vs last year,topping the world as Tesla underwent factory upgrades in the past fewmonths.This year,BYDs deliveries grew each month while Xpeng and Nioswere quite volatile that could be attributed to the lockdown in China,particularly in S

69、hanghai where Xpeng and Nios parts are coming from whileBYD is vertically integrated and does not have much operational presence inShanghai,therefore,the latter is not much affected.Thus in the event offurther lockdowns in China,and supply chain disruption taking place again,BYD should be less affec

70、ted compared to the other EV players.BYD(1211):Respectable ResultHenry Soediarko24As previously discussed,BYD also suspended the fuel engine vehicle inMarch this year and focused on the development of the NEV business,theonly one globally to have done so,contributing to the continuousdevelopment of

71、high-quality R&D of the new energy vehicle industry.Otherplayers like Guangzhou Auto or Geely are still manufacturing combustionengine vehicles although the contribution from EVs has gradually increased.Overseas BusinessBesides Norway(with Tang EV),BYD has managed to launch BYD-ATTO 3 inAustralia.It

72、 has also sold EVs in Colombia,Uruguay,Bahamas,DominicanRepublic,Costa Rica,and lately also in Brazil for Han EV.The PHEV serieswith DM-i products have also reached Colombia.Besides private vehicles,the groups other key product offering is an electricbus.Other than the domestic provincial markets in

73、 China such as Hefei,Jinan,and Fuzhou,the company has sold over 1000 electric buses in the UKand Colombia and has entered the Indonesian market as well.The companyhas also launched the Atto 3 electric SUV that is powered by its Blade batterytechnology in India and plans to gain up to 40%market share

74、 of the IndianEV auto market by 2030.BYD has projected that the EV penetration rate in China will reach 30%byend of this year.In case of some doubts emerge from investors on BYDsability to carry on growing its fantastic sales numbers,the overseasinitiatives mentioned above in Latin America as well a

75、s Emerging Marketsincluding Indonesia and India will provide new growth engines for BYD.Technological and new model updateThe company has launched e-platform 3.0 which combines intelligence,efUciency,safety,and aesthetics that have started with the Dolphin model.They also have launched a battery ele

76、ctric coupe BYD seal model that hasreceived over 20,000 orders on the pre-sale event in May this year.With BYDSeal,they also announced the launch of Cell to Body(CTB)technology thatallows higher integration levels of the blade battery and the vehicle bodythat exceeds 40,000 N m/.Last year the compan

77、y mentioned the conversion project aiming at givingEV driving experience to conventional car owners through its DM hybridseries.With ultra-low fuel consumption and smooth and excellent power,the DM0i models have contributed meaningfully to the companys PHEV andrecently have won just over 50%market s

78、hare in the PHEV segment inChina.The new brand,Denza,is priced around RMB 335,000 to 460,000,a higherpricing point that targets different market segments,consistent with thepremiumization target of the company.In the future,BYD could go from amedium-range EV maker into a higher-end EV maker as well

79、which willgrant the companys ability to have a higher margin.BYD(1211):Respectable ResultHenry Soediarko25Raw Material Price IncreaseTo cope with the impact of increasing prices,the management has madeprice adjustments to certain models in January and March this yearrespectively,which help to allevi

80、ate the cost pressure caused by the priceincrease.The companys gross proUt margin during Q1 and Q2 22 was notmuch lower compared to the year before and Q2 gross proUt margin was infact slightly better than last year by 1.2 ppts.As the commodity prices havegone back to the pre-Russia Ukraine incident

81、 level,the companys grossproUt margin should be better in 2H this year.But the more important thingis that the company has pricing power as it can pass on the price increase tothe customers yet still records sales growth although it is partially due to thefact that the EV industry is still in an ear

82、ly growth stage.Share PriceAfter the share price took a nose dive mid this year,BYD is trading at a lowermultiple from 89x forward PE to currently 36x forward PE.Nio and Xpengare still operating at a loss so there is no PER for both.BYD is currentlytrading at 0.46 forward PEG,a 36%discount compared

83、to Tesla which istrading at 0.72x forward PEG.source:ReutersRiskThere could potentially be further selling from Berkshire Hathaway Inc Cl B(BRK/B US)holdings but we will have to wait for the cue from the HimalayanCapital who brought the idea to invest in BYD to Charlie Munger back in2008.BYD(1211):R

84、espectable ResultHenry Soediarko26There is a risk from the increase in the commodity price that may furtherVatten the margin although the company has proven that it could pass onprice increases to the customers.ConclusionThe market may say BYD is either expensive,faces further sell-off fromBerkshire

85、,or will not grow at the current rate any longer but the truth of thematter is that the company has a solid operation with pricing power andoperates in the mass market segment of EVs.I am still bullish on thecompanys long-term outlook and more bullish in the short and mediumterm from the recent pric

86、e dislocation caused by the Berkshire sell-off.Disclosure&CertiEcationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reVects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appr

87、opriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this ins

88、ight or hold any speciUc opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms speciUed therein.Henry Soediarko(12 Oct 2022)BYD(1211):Respectable ResultHenry Soediarko27SC CapitalGlobal Automotive Stocks/EVFocus

89、/Event DrivenTesla Motors|Equity Bottom-UpTesla Q3 EarningsPreview-Beat WidelyExpected Due to MusksTwitter DealBy SC Capital|19 Oct 2022EXECUTIVE SUMMARYTesla will announce Q3 2022 earnings results after the US market closeon October 19th.Given that CEO Elon Musk needs to sell more of his Tesla shar

90、es to fundhis Twitter buyout by month end,the Street widely expects a hugeearnings beat.Q3 fundamentals were weak for Tesla and orders in Q4 point to anotherdelivery miss versus consensus.We recommend selling into any spikeon a positive Q3 print.DETAILMusk Needs Teslas Share Price to Spike asMuch as

91、 PossibleBy our estimates,Elon Musk needs to sell around$7.6bn of his Tesla shares(pretax)in order to fully fund his buyout of Twitter,which is currentlyscheduled to be announced on October 28th.Since bidding for Twitter at$54.20 per share on April 14th,Musk has sold$15.5bn worth of Tesla shares($13

92、.3bn after tax)at an average share price of$295(34%higher than yesterdays closing price of$220).Needless to say,there is a high incentive for Musk to show stronger thanexpected Q3 results tomorrow and say positive things on the earnings call sothat Tesla spikes.Musk can begin selling his Tesla share

93、s two days after results or the day afterthe 10-Q is published if there are any material disclosures in it(there usuallyare).We expect the 10-Q to be published in record time on Monday andMusk to start selling next week,as the Twitter deal is scheduled to close onOctober 28th.Tesla Q3 Earnings Previ

94、ew-Beat Widely Expected Due to Musks Twitter DealSC Capital28Figure-1 shows our estimates of how much of the Twitter deal is funded sofar,with our estimates of$5.7bn needed after tax by Musk,or$7.6bn pre-tax.Some estimates are as high as$10bn.Figure-1:Musks Funding Shortfall for HisTwitter BuyoutQ3

95、Fundamentals:Higher Volumes,butStronger Currency HeadwindsDeliveries for Q3 at Tesla were announced on October 2nd and missedconsensus estimates by 5.7%,causing the share price to drop by 22%through last Friday.While retail volumes were up 11%QoQ to 332,208 units,currency headwinds were strong.The C

96、NYUSD weakened by 3.4%and theEURUSD was down 6.3%QoQ.To make matters worse,the CNYEUR strengthened by 5.6%QoQ,whichshould negatively impact proUtability of exports from China to Europe.Teslas Shanghai factory generates most of Teslas global proUts(over 70%in2021,by our estimates)and roughly 30%of Q3

97、 production in China wasexported to Europe.Tesla doesnt disclose currency impact on its proUts andis the only carmaker to not do so.Main Assumptions Behind Our Q3 EarningsEstimatesThe main driver of our estimates-which are 12%higher thanconsensus for operating income and 17%higher for GAAP net incom

98、e-are a 1%QoQ decline in ASPs and a 6%QoQ drop in automotive COGS(ex-ZEV credits and leases)/unit.The lower average price of Teslas cars in Q3 is mainly due to dollarstrength versus the CNY and EUR,which weakened against the USDby 3.4%and 5.4%QoQ,respectively.This gives us an average retailprice of$

99、51,995 in Q3 versus$52,447 in Q2.Except for China,Tesla hasbeen aggressively raising prices in Europe,as well in the US,albeit to alesser extent.Tesla Q3 Earnings Preview-Beat Widely Expected Due to Musks Twitter DealSC Capital29Our automotive COGS/unit estimates drop by 6%QoQ due to theremoval of t

100、he 1-month shutdown of the Shanghai factory in Q2.Webasically assume Q3 COGS/unit fall by 2%versus Q1(Q3 retail volumeswere 11%higher than Q1)but we add$280m to the Unal COGS tallyfrom our estimates of quarterly start-up costs for Teslas two newfactories in Texas and Germany.Our non-GAAP EPS estimat

101、es are only 7%higher than consensus,while our GAAP EPS estimates are 11%higher.This is mainly due toour lower assumptions for stock-based compensation($365m versusthe Streets estimates of$427m).Our free-cash Cow estimates of$1.27bn are 46%lower than theStreets estimates of$2.33bn due mainly to our a

102、ssumptions of asharp rise in inventory,as Tesla produced 22,093 more vehicles than itsold.We assume a higher actual inventory of around 25,000 and asharper rise in raw material inventory.We should note that Consensus numbers are those calculated byTesla IR,which polled 22 analysts covering Tesla las

103、t week.These arethe most recent estimates and are lower than what shows up onBloomberg(e.g.Q3 operating income on Bloomberg is$3.9bn,or 8.2%higher than Tesla IRs consensus of$3.6bn).Our estimates andconsensus are listed in Figure-2.Tesla Q3 Earnings Preview-Beat Widely Expected Due to Musks Twitter

104、DealSC Capital30Figure-2:Tesla Q3 Earnings Estimates VersusConsensusTesla Q3 Earnings Preview-Beat Widely Expected Due to Musks Twitter DealSC Capital31Source:SC Capital estimates;Consensus is Tesla IR calculationsPotential Positive SurprisesIf our numbers above are correct,this would not be a huge

105、earnings beat andTesla would likely sell off.Q2 adjusted EPS beat Street estimates by 25%andTesla rose by 24%over the following 10 trading days.While Tesla has an unrivaled talent for defying fundamentals and producemagically astounding results,were staying away from any tactical buyingahead of resu

106、lts,given the currency headwinds and mounting start-up costsat Teslas two new factories.However,we see the following two catalysts thatcould lead to a rally even if Tesla doesnt achieve a 25%beat like it did in Q2.1.Recognition of Deferred FSD Revenues:Over the 12 months sinceJune end,Tesla said it

107、will recognize$1.02bn of deferred revenues fromthe sales of its Full Self-Driving package,a level-2 driver-assist systemwith a price tag of$15,000.A portion of every FSD sale is deferredbecause,well,Tesla cars have yet to drive themselves.However,Teslahas said that it would gradually recognize these

108、 revenues as it rolls outFSD beta testing to a larger portion of its user base.It is unknownwhether Tesla expanded their FSD beta testing in Q3.2.Possible Share Buyback Announcement:While we have argued thatTesla has less cash on its balance sheet than stated(see our June 29threport),many prominent

109、Tesla fans have tweeted out their belief thatTesla should be buying back shares.Despite higher interest rates,Teslareported only$54m of interest income in 1H 2022 on an average cashbalance of$18.5bn-a 0.15%return versus the average 2.44%yield ofUS 10-year Treasuries.When Leo KoGuan-Teslas largest in

110、dividualshareholder-pitched the buyback again on Twitter,given Teslasabundance of cash,Musk replied,Noted last week(see Figure-3).IfTesla were to announce a share buyback,we believe it would only bepossible by issuing debt,most likely in the form of a convertible note.This would probably not be anno

111、unced until Musk Unishes his Twitterbuyout,in our view.Tesla Q3 Earnings Preview-Beat Widely Expected Due to Musks Twitter DealSC Capital32Figure-3:Musk Hints at a Possible TeslaShare BuybackSource:TwitterQ4 Outlook is WeakThere is lots of chatter of Teslas order book dwindling,and in some caseslike

112、 China-Teslas most important market-there appear to be no orders atthe moment(wait times for the Model Y,Teslas most important model,aredown to a week or so,after having been 2 to 4 months).Tesla has said it would grow its deliveries by 50%per annum as recently asits Q2 earnings call,although it mig

113、ht be tough this year due to the1-month factory shutdown in Shanghai due to the covid outbreak.To attain 50%growth in 2022,Tesla needs to sell 479,504 vehicles in Q4,which would require a 56%QoQ rise from Q3 deliveries,which missedexpectations.We believe that competition is rising due to greater ava

114、ilabilityof automotive chips and new car inventory-especially in the US-is risingmarkedly.Tesla Q3 Earnings Preview-Beat Widely Expected Due to Musks Twitter DealSC Capital33With a 2023 PER of 38x consensus estimates(versus 5x for the average autostock),slower growth at Tesla would not be taken well

115、 by the market.Even ifQ3 earnings show a strong beat,it could be undone by Tesla admitting that itwont attain 50%growth this year.Disclosure&CertiEcationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reVects my/our personal opini

116、on(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in

117、thecountry from which it is postedI/We have not been commissioned to write this insight or hold any speciUc opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms speciUed therein.SC Capital(19 Oct 2022)Tesla Q3

118、Earnings Preview-Beat Widely Expected Due to Musks Twitter DealSC Capital34SC CapitalGlobal Automotive Stocks/EVFocus/Event DrivenTesla Motors|Equity Bottom-UpTeslas Q3 ResultsDisappoint for the FirstTime Since Q4 2020By SC Capital|20 Oct 2022EXECUTIVE SUMMARYTeslas Q3 revenues missed by 2%,while GA

119、AP EPS was in-line withconsensus and adjusted EPS only beat by 5.4%.Tesla hasnt seennumbers this weak since Q4 2020.The closely watched Autmotive gross margin(ex-ZEV credits)weremuch worse than expected at 26.8%versus consensus estimates of27.5%.On the earnings call,Musk said he would be buying Twit

120、ter.This willonly add to the selling pressure from Teslas weak Q3 resultsthroughout next week.DETAILTesla had its Urst weak quarter relative to consensus since Q4 2020 resultsand the stock was down 6.4%in the afterhours.While we had expected asolid earnings beat given Elon Musk needs to sell more Te

121、sla shares to buyTwitter by October 28th,it appears the usual magic Tesla has with defyingweak fundamentals werent there for Q3 results(see Figure-1).Figure-1:Tesla Q3 Results Were Weak VersusConsensusSource:Company data;SC CapitalTeslas Q3 Results Disappoint for the First Time Since Q4 2020SC Capit

122、al35The most important points from Teslas Q3 results and earnings call are asfollows:Automotive gross margin(ex-ZEV credits)came in 270 bps lower thanconsensus.This was due to lower sequential ASPs,currency headwinds(Tesla disclosed a-$250m drag on proUts from forex for the Urst time)&record-high ma

123、terial costs.Inventory grew by 27%QoQ,which is much larger than the 15%rise wewere estimating and quite puzzling:Q3 COGS/unit came to$39,430 andTesla produced 22,093 more cars than it delivered.This shouldve led toan implied increase in inventory of only$842m versus Q2,yetinventory increased by$2.2b

124、n QoQ.A breakdown of inventory wont beavailable until Tesla issues its 10-Q.Accounts payable reached a new record high of$13.9bn andtranslated to 80 days payable outstanding-a high not seen since Q22018.This appears to us like Tesla is simply not paying suppliers inorder to cover their huge inventor

125、y growth and remain cash-Vowpositive.SG&A(ex-R&D)was Cat QoQ despite two new factories being rampedup,27%sequential revenue growth and Cat stock-basedcompensation.It is also amazingly low considering that Tesla increasedstore locations by 6%and new charging stations by 8%QoQ.This is thekind of accou

126、nting magic for which Tesla is renown.Customer deposits in Q3 fell sequentially(-8%QoQ)for the Brst timesince Q2 2020.This coincides with order backlogs having shrunkglobally,especially in China.No share buyback this year-which was highly anticipated by fans-but Musk said there could be a$5bn to$10b

127、n buyback in 2023.Forreference,this would only amount to a 0.7%to 1.4%of Teslas currentmarket cap.Musk appears set to buy Twitter,saying that while he and hisinvestors are obviously overpaying for it,the long-term value ishigher than its current price.We estimate that Musk needs to sell$7.6bn worth

128、of Tesla shares to fully fund the buyout.Some estimatesrun as high as$10bn to$15bn.Musk will likely start selling after the10-Q is Uled(our guess is next Monday).Musk says that China and Europe appear to be in a recession,butTesla is recession-proof.His CFO admitted that Tesla would fall shortof its

129、 50%YoY delivery growth goal due to logistic hiccups,butproduction would grow by 50%versus 2021.This doesnt sound good tous,given Teslas growth-stock valuations and the prospect for evenhigher inventory in Q4.With weak Q3 results and no share buyback to pump the stock,Muskresorted to saying Teslas m

130、arket cap will one day be more than Applesor even Saudi Aramcos$2.1 trillion market cap.Teslas Q3 Results Disappoint for the First Time Since Q4 2020SC Capital36Tesla currently trades on a 2023 consensus PER of 38x and an EV/EBITDA of23x versus the global sector averages of 8x and 4x,respectively.Th

131、ey haveoverbuilt capacity for their four-model line-up,with only the Model Y(60%of Q3 deliveries)driving growth.The average age of the remaining 40%of Teslas sales are models that havealready seen peak sales and the Model Y itself faces stiff competition from awave of rival models from 2023.With no

132、new models or full makeovers inthe pipeline,we see Tesla earnings going ex-growth from the 2H of 2023.For a deep dive into Teslas ex-growth story,please refer to our June 29threport:https:/ have position(s)in one or more of the securities referenced in this insightViews expressed in this insight acc

133、urately reVects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singap

134、ore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any speciUc opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms speciUed the

135、rein.SC Capital(19 Oct 2022)Teslas Q3 Results Disappoint for the First Time Since Q4 2020SC Capital37SMARTKARMA RESEARCH:This publication is published by Smartkarma Innovations Pte Ltd(Smartkarma),the operator of online investment research .The Publication contains content authored by Smartkarma and

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