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.

Re:How to stop the losses

[russotto]

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.

Well, the summary claims they're losing money on "operating margin", which would exclude capital expenditures due to scaling up. I suppose it's possible a slashdut summary isn't infallible, but I'm pretty sure they've never been wrong before.

Re: How to stop the losses

[mspohr]

I can't believe the stupidity of the financial press. Tesla actually makes 23% profit on every car. The company is investing heavily in new production capacity (batteries,production lines,new models) so they loose money but they have a lot of investors willing to finance their expansion.

Re: How to stop the losses

[Anonymous Coward]

"The financial press is criticizing a company I like so I'm going to make up a stat that says they're actually doing well and call the press stupid"

Seriously, you throw out "actually making 23% profit" but then put no source what so ever. And you say that investing heavily in new production capacity means that it's fine to lose money. You can only do that for so long. I used to work for a company (the name will go unmentioned for anonymity reasons, but I'll say the were a competitor to Tokyo Joes) that on a per store basis was extremely profitable, but then they tried to expand to quick, ran out of cash and went out of business.

Re:How to stop the losses

[Anonymous Coward]

They have an extremely healthy positive operating margin of over 20% per car (well better than the industry at large).

And as the revenue from every car goes towards both variable costs and a portion of the fixed cost of the factory and capital equipment to make the cars, they can make it up in volume. The significant positive gross margin per car tells you that they more than cover the variable cost of each car, thus every additional car produced makes them more profitable.

Not to mention that operating profit at Tesla includes accounting for costs of installing new superchargers, building new sales locations, new Tesla energy business, etc. all of which they continue to significantly invest in the growth of.

The linked article was written by someone who at best has no idea what they are talking about, and at worst, was purposely spreading FUD.

Looking forward to the automated electric car revolution that Tesla will bring us in the coming decade. Got my popcorn ready.

Re:How to stop the losses

[Mr D from 63]

They have an extremely healthy positive operating margin of over 20% per car (well better than the industry at large).

You should be careful with such a generic statement. Most other car manufacturers include product specific R&D, overhead, and sales in their margins. There are different acceptable accounting practices, and so comparing apples to apples can't be done without a little digging and pointing out the differences. It appears that Tesla does not include administrative overhead nor sales and marketing in their operating margin calculation, which I think is kind of odd, but that's Wall Street for you. If you include everything but R&D, they are closer to break even.

Re:How to stop the losses

[BradMajors]

Nope. Learn the difference between operating losses versus capital investments. Yes, Tesla is losing money on every car they make.

And in reality, Tesla has a $14,000 operating loss per car. (not the $4,000 using Telsa's creative accounting.)

The hell you say...

[rmdingler]

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?

Disrupting status quo

[Anonymous Coward]

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.

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.

A huge risk, that's paying off well

[MoogMan]

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.

Re:Good riddance, Tesla

[ledow]

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.

Re:Good riddance, Tesla

[Fwipp]

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.

Tesla "Losing Money"

[PopeRatzo]

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

Re:So if every American gives them a penny per car

[cheesybagel]

The $4.9 billion includes SpaceX and SolarCity as well. It also includes loans which have been paid back.

Re: So if every American gives them a penny per ca

[O('_')O_Bush]

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.