Tesla Suffering Cash Flow Issues; Every Model S Means a $4,000 Loss

An anonymous reader writes: The latest reports from Tesla show a trend of missing positive cash flow targets. Despite previous guidance to the contrary, Tesla is losing more than $4000 per car in operating margin and no sign of near term improvement as they are now reducing their production targets at a time when they are also experiencing pricing pressure. A scan of articles published today on this news reveals a common opinion that Tesla will need to raise more capital soon. A small slice of the Reuters report linked: Tesla has signaled capital spending will drop next year because the company won't be spending on a major vehicle launch. In 2017, Tesla plans to launch its Model 3 line, which the company says will start at about $35,000 and push total sales toward the goal of 500,000 vehicles a year by 2020. Barclays analyst Brian Johnson disagreed with the company's estimates, and said he expects Tesla's capital spending will go up in 2016 and 2017 as the company ramps up its battery factory and Model 3 development. "Their small scale means the cash generation is not as great as they might have hoped for," he said.

Comments

How to stop the losses

[Anonymous Coward]

Stopping the losses is easy, but would kill the company:

Stop investing in the battery gigafactory
Stop investing in the upcoming new models
Stop investing in the Supercharger network.

They'd be profitable, but sitting still and would have squandered their future.

Re:How to stop the losses

[Rei]

That's a serious point. They're not losing money "on every car sold", in that it implies that it's the cost of making the cars that's losing them money. It's the cost of scaling up by orders of magnitude that's losing them money. But that's obviously to be expected.

Companies investing in Tesla aren't investing on a valuation of them making a few tens of thousands of Model S's per year. They're investing on the prospect of Tesla churning out hundreds of thousands or even millions of electric vehicles, mostly lower end, per year.

There's more to it than profit.

[DerekLyons]

Gaining market share in an entrenched industry by turning convention on its head may not be extremely profitable at first.
Despite that, it still works sometimes: are Jeff Bezos' ear's ringing?

Amazon's lack of profitability was/is in some ways artificial - they spent (are spending) a goodly chunk of cash on infrastructure. And even when they weren't (technically) profitable, they still had a healthy cash flow (which Tesla doesn't have).

With their debt load, an unhealthy cash flow is a real problem. Without cash flow, you're limited in your ability to re-finance or to pay interest while pushing the repayment of principal into the future. (Which isn't the best strategy overall, though it can work if the stars align.)

Re:There's more to it than profit.

[Rei]

Tesla's solution to running short on cash is, and has always been, to sell equity. Which is a common approach to startups, and they're still really in a sort of startup mode. It works fine, so long as others think that their plans after scaleup will be profitable. And so far there seems to be plenty of investors who think so.

Re:There's more to it than profit.

[Mr D from 63]

Tesla's solution to running short on cash is, and has always been, to sell equity. Which is a common approach to startups, and they're still really in a sort of startup mode. It works fine, so long as others think that their plans after scaleup will be profitable. And so far there seems to be plenty of investors who think so.

They also need the stock price to stay high so they can easily raise capital. So the bigger problem is not margin, but it is in missing projections, both in cost and in sales. If you miss your target projections, stock prices will take a hit. A 10 percent drop in sales from projected is pretty bad, not only from a credibility standpoint, but also from a marginal cost of production standpoint. The one thing Tesla has working in its favor is low inventory, so at least they are not likely to get caught in that trap near term. If sales were to drop a lot the next few quarters, they may start seeing inventory issues and greater pricing pressure.

The word you're looking for isn't infrastructure.

[DerekLyons]

Amazon's lack of profitability was/is in some ways artificial - they spent (are spending) a goodly chunk of cash on infrastructure.

Infrastructure. You mean like building a free supercharger network across the country and internationally?

No, I mean things like warehouses and distribution centers and data centers - things that turn around and generate cash flow. I mean the normal meaning of the word infrastructure.

The word you're looking for is loss leader.