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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.
Then they can make a substantial profit.
Let's get out the donation jars.
Fed bailout too big to fail.
Subsidies running out - fun times ahead.
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.
Despite that, it still works sometimes: are Jeff Bezos' ear's ringing?
Happiness in intelligent people is the rarest thing I know.
Ernest Hemingway
Musk has repeatedly said that he's far more interested in changing the world than in making money. The dollars and cents are merely a vehicle for his visions.
So wait, you are saying that I can stick it to Elon Musk and Tesla by buying one of their cars? If I buy one, they lose $4,000? Let's all go buy one, right now, just to mess with them!
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.)
If they include all the investments made in battery technology, charging stations and future lines, then $4k/car is pretty much peanuts.
Custom electronics and digital signage for your business: www.evcircuits.com
No, building each Tesla does not mean a $4000 loss.
The obviously make a profit building and selling the cars - raw materials + labor is definitely less than the sticker price on the vehicles.
They are just investing huge sums developing the new Model X - so if you count all those expenses against the Model S cars sold during this timeframe, you would get this "$4000 loss per car".
This electric car craze needs to die soon. The sooner the better. As a society, we simply won't have the means to produce enough electricity to power all those toys. People need to wake up and understand the Good Old Days are gone.
Tesla took a huge risk by taking a completely new technology (battery-powered cars) and applying it in a completely new and untested way (performance car). They went into it knowing that they'd be taking a loss for the medium term.
If Tesla are already at taking only a $4k loss / 10% loss, they're doing extremely well:
- The "Supercharger" units that are being aggressively installed across many countries will be accounted for within this unit cost... It won't be long until they reach diminshing returns on their deployment, and the impact of this will tail off.
- They added a number of new product lines, all sinking huge money into R&D. They're close to establishing a range of products so the impact of this will tail off shortly.
Musk could easily choose to add $4k to the sale cost of each cars with minimal impact and result in a 0-dollar P/L, but increasing production count ensures far better long-term return by economies of scale improvements, as well as learning opportunities when scaling aggressively.
Can afford another 4-5k on the sticker price.
But... they plan to make up for it in volume? There's not a conversation going on there, along the lines of "Hey Elon! We're losing 4 grand per model S sold! You think maybe we should... raise the price by 4 grand?" It's not like there's really any competition. I mean, there are other electric cars, but Tesla's like the Apple of the vehicular manufacturing world.
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
It has been suggested that Tesla should get into the battery business, as a product. They've done a lot of work to improve battery energy density. If they were to market these to laptop and cell phone vendors, would they be able to use that cashflow as a means to prop up the rest of the business?
Easily makes back that lost 4000 in liberal tax write offs for "saving the world" (tm)
What they lose on each car they'll make up for in volume. Or ask the feds for another $4 billion...
I really hope Tesla stays in the game. That long article over at waitbutwhy totally sold me on the concept, and I was looking forward to buying one of the "mass production" models when they become available in a couple of years.
Also, weren't they supposed to be totally flush with money? I thought Musk said demand for the things was so high that he didn't think that giant battery plant they're building out in Nevada would be able to meet it.
(CAPTCHA: hotness)
Somebody is trying to trigger a selloff of $TSLA ahead of the release of the Model X, which will likely cause a major rebound. The stock has already lost a significant percentage since it's peak, and if they can make it go down further before the Model X gets delivered, there is major potential to buy up the depressed stock and make some major bucks. It's proven to be _very_ volatile.
Of course they're losing money, they're doing R&D of a major car they haven't started selling yet. Cut their CAPEX spending and suddenly they're in the black. This isn't rocket science, and we all know that Elon is pretty good at rocket science.
So goes the old line.
In more than ten years, Tesla turned in a quarterly profit one time. It takes real genius to lose money year-after-yearjust like Steve Jobs. Oh wait, Steve’s companies were profitable.
I know that the fanboys love to compare Tesla to Amazon, because Jeff Bezos is a loser too (his company also loses money), but both Tesla and Amazon will ultimately fail because you can’t lose money forever. As soon as Amazon tries to raise prices, people will shop elsewhere. Bezos’ strategy is to undercut competitors in existing markets, and drive them out of business so he can eventually own the market and raise prices. That’s not exactly revolutionary; the Japanese did this with the semiconductor market decades ago. It never works long-term.
I don’t know how to make Tesla profitable. They’ve been losing money on each Model S made since they introduced the model, and their time is running out. If battery-powered cars ever catch on, the average consumer will buy a Ford, Nissan, Chevy, or Toyota, and those companies will make the majority of the profit. I suppose Tesla might be able to pull an Apple and hang on to the high-end of the market (presumably where the highest profit is), but that assumes that these other established auto manufacturers won’t steal sales from them. I wouldn’t take that bet.
They are getting about 16 bucks from every American, and not 'per car'. Musk's scams have gotten him 5 billion in federal aid. 'Bootstrapper' indeed. http://www.latimes.com/busines...
The business model is insufficient without government (taxpayer) intervention.
Time to close the doors you thievin' be-och..
Tesla has a gross profit (revenue from the selling cars - the cost of building the cars) of around 23%. When you subtract sales, general and administrative cost and research and develop costs they have an operating loss. Obviously with fast growth Tesla will be able to spread out its SG&A costs and research costs over a greater number of vehicles.
From the Q2 2015 report (number millions)
Total Revenue 954,976
Total Costs of Revenue: 741,606
Gross Profit: 213,370
Research and development Costs: 181,712
Selling, general and administrative : 201,846
Loss from operations (170,188)
Don't knock it, it worked for the other ostensibly American automakers, producing many of their cars and parts in Canada and in Mexico.
Don't get me wrong, from an automaker's perspective it makes sense to build cars in Mexico as it's part of both NAFTA and ALDAI (a Latin-American free-trade zone) so cars built in Mexico can be sold in nearly all of North and South America without much in the way of tariffs.
Do not look into laser with remaining eye.
They are a cost that scales up with the number of cars sold.
1 Supercharger used to be enough to cover all the drivers passing through Harris Ranch in California. Now 7 isn't enough.
If they double their customer base they have to double their number of Superchargers.
Unless someone else takes over the Supercharger business from Tesla, Supercharger installation will be an ongoing cost.
And don't forget, they pay the electric bill on those chargers too. More cars, more chargers means more cost to them.
5 billion / 300 million is indeed 16 dollars, but 16 dollars is 1600 cents.
They have sold more than 1600 cars, I will grant Tesla that much.
Check out the big brain on this smart kid! They've sold MORE than 1600 cars!
So, you want to do the per-car subsidy trick, but are lacking the math? Well, let me help you.
They've apparently sold 50800 cars to date (source:http://insideevs.com/monthly-plug-in-sales-scorecard/) .
Now, please educate me. How much is 5000,000,000 divided by 50,800?
Hint: it is a five digit number, and the most significant two are 98.
Let's look at a few other companies that are "losing money"
1. Sony
2. Sprint
3. Amazon
4. Instagram
5. Snapchat
6. Box
7. Twitter
You are welcome on my lawn.
They've sold plenty of debt alongside that equity. It's a viable strategy, but imposes burdens that equity doesn't. If you don't have a healthy cash flow, equity doesn't come back to bite you in that ass - debt does.
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.
So it's not quite like the apple iPhone, where there are other brands that provide similar functionality.
It's 30-70 mile range Leafs,Volts,i3s and the like, which meet some fraction of consumer needs, and the Model S, which meets a different set of consumer needs.
I commute 105 miles/day, and consume about 298 Whr/mile doing that. The other electric cars were total non-starters. Sure, on some days I might be able to make it to work, charge at work, and make it back home, but a "drive 30 extra miles on the way home to stop and pick up something" would be out of the question. Instead, I get in the car in the morning with the nominal remaining range of 210 miles, do my commute and come home with 100 miles in the tank. Or, if I run those errands and do other stuff, I come home with 50-70 miles in the tank. Either way, I'm not worrying about finding a charge point, a supercharger, or, really anything.
It isn't 300 million cents per car.
Not surprising since the taxpayer funds all of Tesla.
Don't knock it, it worked for the other ostensibly American automakers, producing many of their cars and parts in Canada
True, and to keep it that way they got a as well and they are not even Canadian companies!
Personally I would much rather have my tax money bail out a company like Tesla than GM/Ford/Chrysler. If Tesla can get their technology and business model to work then society will benefit in the long term from less pollution and less hassle purchasing cars. I'm not really sure what, if any, the long term benefits are of propping up a company like GM is. It might save job losses in the short term but given their reluctance to change and modernize I expect it is just postponing the inevitable.
Indeed. It is only 10 million cents. But real money.
The $4.9 billion includes SpaceX and SolarCity as well. It also includes loans which have been paid back.
"Pass-through" tax credit.
Yeah, yeah. The credit goes to the purchaser not Tesla. But we all know the Tesla price is set based on the fact that the customer will get a $7500 gift from taxpayers.
It also includes research and development, factories with assembly lines and tooling, etc. Each additional car means every car made costs a bit less.
Then we are 290 million cents per American behind?
For shame!
Scams? Ridiculous. The government did the Republican thing by incentivizing business on the cutting edge of desirable technology. Elon Musk is just an entrepreneur doing what he is legally responsible to do for his shareholders by pushing boundaries where the government is giving money and preferential loans for companies to innovate in.
Hardly something to fault him for.
while(1) attack(People.Sandy);
the cutting edge of desirable technology
What's cutting edge about Tesla? It is an electric car that has been hyped out of all measure, but that's about all.
legally responsible to do for his shareholders by pushing boundaries
Musk isn't 'pushing boundaries', he's recycling stuff other people developed before him. He even stole Tesla Motors from other people so not even the name is his.
the government is giving money and preferential loans for companies to innovate in.
And here comes the question -- is the investment worth it. At the 5 billion price tag we have an ordinary luxury car that doesn't sell particularly well, a rocket that doesn't quite fly and an electric utility that operates at a loss. That's not really tax money well spent.
Tesla should license instead of researching self driving car tech. Instead of going for the $35k car so quickly, they should make a cosmetically different, lower end model s.
The fact the 40 kwh model s did not sell well is not a good sign about the mainstream electric car market.
Tesla should only be allowed to compete with other auto dealers if we remove the massive amounts of government subsidy that lowers the price of the Tesla S.
Then I'm afraid you don't know what infrastructure means.
noun
1.
the basic, underlying framework or features of a system or organization.
2.
the fundamental facilities and systems serving a country, city, or area, as transportation and communication systems, power plants, and schools.
http://dictionary.reference.co...
Infrastructure is exactly what the supercharger network is.
Cutting edge? It is just a glorified golf cart.
Now this is cutting edge:
http://news.ku.dk/all_news/2015/05/chemistry-student-in-sun-harvest-breakthrough/
The rocket flies quite well. It's the safe landing part that it struggles with, but no other rocket will land safely either.
Here in Canada, at least, if you want a Tesla there's a 5 month waiting period to get it. That's how far back the order queue is. There's definitely massive demand, so at least there's that.
Yes, I do know what infrastructure means.
The supercharger network fits neither definition. It's not a basic underlying framework or feature of Tesla - it could vanish tomorrow and their business would continue without a bobble. Nor does it fit the second definition - which refers to public services and utilities, not private businesses.
It's a loss leader, a service that Tesla pays for and provides to their customers for free in order to attract business.
(Seriously, what motivates you to mangle the language so, rather than admitting you're wrong and recognizing the truth?)
Amazon's losing $3 per unit of everything they sell, and they've been doing it for 20 years.
Nothing to see here but a hit piece by Detroit running scared.
One could argue that Tesla is really interested in making electric cars but rather taking advantage of economic fascism i.e. the government mandates that the "fleet" meet unrealistic fuel economy and emissions standards but the cars that people really want to buy can't meet those goals so Tesla accrues carbon credits or emission credits or economy credits or some other phony currency which they then sell to the normal car companies. They don't care if their cars work or sell.
Given that Elon Musk is also into the solar leasing industry which takes advantage of the tax credits, this might be true.
Elon will demand that each S will now have Solar Panels, from his failed Solar Panel company and Storage Batteries in the trunk from his failed Storage Batteries company.
Ha Ja
With Apologies to Black Oak Arkansas tune "Go Jim Dandy",
Elon was-a shit-n on a Mountain Top
Down below his feet did drop
There he saw a run-away TeslaS
Pretty Lady with Big Boobs Yes-A
Elon stood up with his dick in his hand
Go Elon Musk Go Elon Musk Whew
Elon Musk to the Res-Que
Elon Musk to the Res-Que
Elon Musk to the Res-Que
Go Elon Musk Go Elon Musk Whew.
Ha Ja
It's a scam if it isn't going to the oil companies for 'exploration'.
Same thing as using government incentive to buy an electric car or solar panel. You are not scamming the system when using incentives specifically put in place to encourage the action you are taking. That's the other way around, it is the system working as expected.
Every car they sell nets a tax subsidy designed to encourage electric cars - we average tax payers have no say in this since it is being take from our paychecks.
Every car they sell is further subsidized by all the "carbon offsets" trading Musk has Tesla doing as part of their business plan. All of us average people are paying higher energy bills in-part because they include the completely artificial carbon trading insanity cooked-up by ENRON as a new scam to let rich people get richer buying and selling shares in nothing. Musk is getting revenue for Tesla from this offsets trading bull****.
The slickest trick the "green" industries have pulled is that they get ACTUAL subsidies (direct infusions of cash forcibly taken from taxpayers) while they accuse non-"green" companies of being unfairly subsidized (because THOSE companies have standard business tax breaks that let them keep more of their own money (NOT an actual subsidy at all) and which are also available to the "green" companies).
It only works on ignorant people, mostly stupid college and high school kids.
When government takes taxpayer dollars and gives them to a business of its choice to manipulate the market or achieve some government purpose, THAT is a "subsidy". A subsidy gives one entity money that was forcibly taken from some other entity.
When government chooses to take fewer dollars from somebody in the first place, THAT is a tax break. A Tax break does not transfer any money; it's actually the opposite of a subsidy. It's the government NOT transferring money.
Tax breaks for car companies and energy companies are every bit as available to Tesla as they are to GM or Ford, or Exxon - and you can be certain Tesla is taking full advantage of them. The Subsidies of Tesla, on the other hand, are NOT available to GM, Ford, or Exxon.
Tesla may be one of the most popular electric vehicles. No doubt they are well designed and unfortunately target more wealthy "green" consumers. So its not surprising that Tesla is already experiencing the slow down in sales. The market is only so big when your selling a product that not everyone finds practical and not everyone can afford. I think a DeLorean comes to mind as another work of art in design and flair but again ended up being impractical. Tesla latest car has doors that open up and are very non urban friendly. Try getting out of one in a tight parking lot. But Tesla is not the only EV struggling to get sales. Most of the EV's are not doing well and manufactures are taming their enthusiasm for EV's because the public seems unwilling overall to deal with their quirks.
Yes, it flies quite well. We all saw the fireworks last time.
From the TFAWACNDR ( the fine article which Anon Coward did not read )
“What Anders has achieved is an important breakthrough.
Admittedly we do not have a good method to release the energy on demand, and we should increase the energy density further still.
But now we know which path to take in order to succeed”, says a visibly enthusiastic professor Mogens Brøndsted"
So a way has been found to store much more energy that can NOT be released when needed. Should we refer to this as undispatchable locked energy storage?
Do let us know when that last tricky step has "succeeded". Those niggling little problems that looks so easy usually takes years to decades to resolve and then additional time to commercialize.
I do have high hopes but my flying car and fusion reactor are 30 years the date I was promised.
Pain is merely failure leaving the body
I don't fault him. I fault our government running a ridiculous deficit while already insanely in debt giving our money away on risky ventures.
Now divide 100,000 by 300,000,000 and you get 0.33 cents per person, per car. That is: one third of one cent.
Tesla is a cool car, but current developments in a surprisingly older technology may make batteries (at least for cars) a thing of the past.
Private browsing is nice if you want to spend mod points on your own AC posts.
Good news everyone! There's still hope that the status quo may survive!!
Requiem for the American Dream
What Axe do you have to grind? You chastise the one guy who is doing the most to get us off of foreign oil that we buy from our very worst enemies... the same despots that destroyed the Twin Towers and the Pentagon... cretins that still today are unleashing terrorism not just in Iraq, Afghanistan, Pakistan, Libya and Syria, but Australia, Malaysia, France, Britain, and throughout Africa... if we drive EVs, the $450 billion we spend yearly on oil stays here for our schools, hospitals, roads and bridges. So what is your hidden agenda that you don't point out that the oil industry and the Big Tree car makers have been receiving hundreds of billions in handouts and subsidies for decades, but also conveniently ignore the fact that Tesla borrowed a few hundred million during the depths of the recession and paid it back ahead of time, WITH INTEREST? So, Anonymous Coward, what has made you so transparently biased, and why not tell us who you are and what Musk has you so worried about? Do you want to maintain status quo, rather than the country shifting to EVs? I have two electric vehicles, neither of which is a Tesla. I spend no more money on oil changes, tune-ups, smog tests or tranny service that EVs do not require. My month expenses are virtually nil. What about that has you so eager to attack unfairly? (Moderator: no, AC is NOT "informative".