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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.
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.
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.)
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.
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?
Whereas oil - I mean there's just an infinite supply of that, isn't there?
Idiot.
An electric car can be powered from anything. A hydrogen car can only be powered by hydrogen, and a petrol car only by petrol and a diesel car only by diesel.
The last time I priced up an electric bike, it worked out something like 10p of electricity for each trip, which would have worked out less than 1/40th of my petrol costs over the course of a month. I can put the savings from that into something that produces a pittance of electricity quite easily.
However, that's on the cusp of being true for cars too. So much so that I'd rather have a 220V/32A outside connector on my house than anything to do with any competing technology.
Fuck, if it comes to it, I'll go to an electric bike for 90% of my journeys and literally NOT PAY for propulsion overall. I could do that in a crappy, cloudy, still country and still find a way to produce that electricity that's cheaper than running a petrol equivalent.
The only thing we don't have power for is the PEAK hours, nothing else. Otherwise, the pittance drawn by a car is eclipsed by your heating, lighting, etc.
But the beauty of electricity? It can come from ANY source. We could quite literally just burn petrol in a huge petrol engine and keep MORE electric cars powered than that petrol could have run direct.
My understanding is that the Tesla car batteries are built from large arrays of commodity Li-ion battery cells, they're nothing special in terms of capacity or size or design. An 80kWh Tesla battery pack might have ten thousand cells each of which is a 3.7V 2.2AH unit of the sort you'd find in a laptop battery pack, arranged in series-parallel.
Tesla's "secret sauce" is the charging and conditioning of their batteries as well as armouring them against damage in a collision and preventing propagation of a fire in a series of cells spreading too quickly to the other cells in the pack.
Making Li battery cells in the Musk Gigafactory will bring the cost down a bit, cutting out the middleman as Henry Ford did but I don't expect them to change the design much, for safety reasons if nothing else. Battery makers don't sell large Li-ion cells for the same reason they don't sell large hand-grenades...
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.
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.
As much as I'm a fan of electric vehicles, this analysis looks pretty flawed. They talk about "energy" efficiency (and cite "electricity + natural gas" as money spent by refineries), then immediately turn around and assume it's all electricity.
it can be estimated that about 21,000 Btu—the equivalent of 6 kWh—of energy are used per gallon of gasoline refined.
It is a simple fact that the refining of gasoline requires approximately 6 kWh of electricity per gallon of gasoline.
Here is a counterpoint that seems to make more sense. http://longtailpipe.com/ebooks...
Main points:
1) Not all the energy they use is electricity, most is actually burnt oil.
2) The process of refinement produces several products; it's unfair to attribute all the electricity to the gasoline produced.
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.
The problem with electric is that massive areas of Europe are totally and utterly useless for owning electric vehicles, because the norm here is for unallocated street parking, meaning you can't charge it overnight.
nah, we did that with GM, Ford, Chrysler, Toyota, MB, etc.
And yes, Ford was bailed out since we lent them 10's of billions to revamp with NO INTEREST.
I prefer the "u" in honour as it seems to be missing these days.
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.
The $4.9 billion includes SpaceX and SolarCity as well. It also includes loans which have been paid back.
It also includes research and development, factories with assembly lines and tooling, etc. Each additional car means every car made costs a bit less.
The U.S.A. government is giving a lot more money to GM, Ford, oil companies, etc. It's also wasting a lot of money on pointless wars and armed conflicts.
And you're worried about Tesla?
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);
I worked on a hybrid boat with over 18,000 Li-ion batteries in the bilge!
(You don't want it to sink!)
It had 2 X 100 HP electric motors between the 500 HP diesels and the pod drives. You could run them for an hour at max output (about 12 knots) with the battery capacity it had, and you could get a whole days worth of putting around if you took it easy.
It recharged with solar panels in under a week, so you could use it every weekend using only the sun.
Recharging on shorepower was problematic to say the least. While it may be a 20 amp outlet, few of them can actually deliver 20 amps!
Cheers!
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.
Natural gas. Your WSJ article is a year out-of-date, and simply wrong:
http://pipedot.org/story/2015-...
Slashdot gets worse every day... Pipedot: News for nerds, without the corporate slant
1) That's oil that could have been left in the ground or used to produce electricity or some other use.
2) That's almost entirely accounted for. The calculation takes the BTU of a barrel of crude, refining efficiency (~85%) and the BTU of the resulting refined products and converts the difference to kilowatt-hours.
Keep in mind that's only the energy consumption of the refining process. If you do a full "well-to-wheels" analysis of the various energy sources, fossil fuels start to look ugly very quickly.
http://www.plugincars.com/refi...
http://www.eia.gov/energyexpla...
Pain is merely failure leaving the body