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Tesla On Track To Turn a Profit This Year (cbsnews.com)
Thanks to gains in Model 3 output, Tesla's second-quarter revenue grew by more than $1 billion. Unfortunately, the company's net loss rose dramatically as a result. In a statement, Tesla said it achieved its target of producing 5,000 Model 3 vehicles per week and that it aims to make 6,000 per week by the end of August. It's expect to produce 50,000 to 55,000 Model 3 vehicles in the third quarter -- a sharp increase from the previous quarter.
"It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable," Musk and Chief Financial Officer Deepak Ahuja wrote in a letter to shareholders. "In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash-flow positive." Tesla has only turned a profit in two quarters. CBS News reports: The electric vehicle company founded by billionaire Elon Musk reported an adjusted net loss of $717 million for the period on revenue of $4 billion. Tesla went through $739.6 million in cash between April and June, less than the $900 million Wall Street analysts had forecast. In another boost, the automaker said it has trimmed its capital spending by manufacturing the Model 3 on existing assembly lines, rather than building new lines. Although Tesla is burning through less cash, it continues to lose money. The company reported an adjusted net loss of $3.06 per share, more than analysts expected. The loss more than doubled from the same quarter a year ago. Slashdot reader Rei adds: After the release of Tesla's Q2 results and followed by the investor call, Tesla's stock surged around 9% in aftermarket trading today. Among the main drivers: automotive gross margins rose to 21%, Model 3 gross margins turned positive (before the start of sales of AWD and performance variants, which are making up half of all new orders), and the reiteration and reinforcement of guidance for sustainable profitability from Q3 onward. [...] While no longer using a reservation system in the U.S. for first-production orders (retaining it only for less expensive Model 3 variants and overseas orders), new North American first-production orders are making up a large portion of current orders; consequently, no changes are announced for timing of overseas orders. The average selling price is expected to remain high "for several quarters" due to "a richer mix in the initial wave of Model 3 deliveries to Europe and APAC"; the "normalization of the Model 3 average selling price" is anticipated in the second half of 2019, and is not expected to impact gross margins, due to improved production cost efficiency over time. On the conference call, Musk sounded tired and admitted to getting too little sleep. He apologized twice, but was told by an investor: "Don't let the trolls get you down, but we do like it when you tease the trolls a bit."
"It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable," Musk and Chief Financial Officer Deepak Ahuja wrote in a letter to shareholders. "In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash-flow positive." Tesla has only turned a profit in two quarters. CBS News reports: The electric vehicle company founded by billionaire Elon Musk reported an adjusted net loss of $717 million for the period on revenue of $4 billion. Tesla went through $739.6 million in cash between April and June, less than the $900 million Wall Street analysts had forecast. In another boost, the automaker said it has trimmed its capital spending by manufacturing the Model 3 on existing assembly lines, rather than building new lines. Although Tesla is burning through less cash, it continues to lose money. The company reported an adjusted net loss of $3.06 per share, more than analysts expected. The loss more than doubled from the same quarter a year ago. Slashdot reader Rei adds: After the release of Tesla's Q2 results and followed by the investor call, Tesla's stock surged around 9% in aftermarket trading today. Among the main drivers: automotive gross margins rose to 21%, Model 3 gross margins turned positive (before the start of sales of AWD and performance variants, which are making up half of all new orders), and the reiteration and reinforcement of guidance for sustainable profitability from Q3 onward. [...] While no longer using a reservation system in the U.S. for first-production orders (retaining it only for less expensive Model 3 variants and overseas orders), new North American first-production orders are making up a large portion of current orders; consequently, no changes are announced for timing of overseas orders. The average selling price is expected to remain high "for several quarters" due to "a richer mix in the initial wave of Model 3 deliveries to Europe and APAC"; the "normalization of the Model 3 average selling price" is anticipated in the second half of 2019, and is not expected to impact gross margins, due to improved production cost efficiency over time. On the conference call, Musk sounded tired and admitted to getting too little sleep. He apologized twice, but was told by an investor: "Don't let the trolls get you down, but we do like it when you tease the trolls a bit."
Tesla rose $28 in after-hours trading. It might be an interesting morning for the shorts.
If GM took EVs seriously starting when they produced EV-1 and kept going until now, there would be no need for a Tesla. The fact that GM discarded any lead they might have had is more meaningful than how many internal combustion cars they can make.
Bruce Perens.
Tesla's market cap is about the same as GM's. GM produces about 8,000 cars per day (averaged over the year), or 56,000 cars per week. An order of magnitude more than Tesla. If Tesla wants to justify its market cap, they need to spend about 10x more capital investment on production equipment as they spent just to get to 5,000 cars per week. If they now slow down investing in production equipment as you're theorizing, they're basically saying "Our stock should only be priced at $35 a share."
Sure, GM makes a lot of cars. But, there is no growth story for GM. There is no real reason to think that GM will be making 2x the revenue in 2 years. But with Tesla, that's not just a possibility...its likely. That's the difference and why there is a difference in the market cap (really a different multiple). The other thing is that people actually want Tesla's cars. GM's cars aren't nearly as desirable to the public and aren't sold with even close to the same margin. Tesla makes about 3x what GM makes per car of profit on the Model S and by the end of the year make that much on a Model 3.
No other auto maker will be able to mass produce an EV in the next 5 years (BWM is the closest and won't be there for about 4 1/2 years at the earliest). The reason for this is while the auto makers can make cars, they can't make the EV batteries. Also, they don't have secured supplies for the Li and other rare earth metals they need. Finally, they don't have the knowledge of the battery chemistry to make those batteries efficient enough to sell them (or the EVs that contain them) at a profit.
This is why Tesla has a huge multiple. Because even the most ardent Tesla Bear will admit that many people want an EV and will be buying them in the next 5 years. Because the EV market will be in the millions by most projections in the next 5-8 years. During that time, Tesla will have the only option on the market. The question is can they hold that lead. Most say yes for a variety of reasons: 1) Auto makers hate EVs to the very core of their soul 2) Dealerships hate EVs because they mess with their business model 3) you need to be the world's largest producer of batteries (Tesla) to make EVs profitably.
"Those that start by burning books, will end by burning men."
if you want to be stupid enough to compare Toyota and Tesla, compare Tesla with Toyota's first 10 years in the business
"The hands that help are better far than lips that pray." - Robert Ingersoll (1833-1899)
Or contract it out to someone who knows what they're doing, like Jaguar did with the i-Pace
No one knows how to build EV's at the scale Tesla does. They're working it out as they going along too.
Silly me and my antiquated notion of profit!
Yes, you don't go straight from "I have an idea for a business" to "profit". There's the part called "investment" that happens in there, and it takes a LOT of money to create a new car company.
Tesla's goal is to switch the world to sustainable energy. They're doing that buy becoming an automobile manufacturer. This is an old, well-established market where it's more likely that an existing company dies than for a startup to succeed. Now, you could plan on being a "boutique" manufacturer, like Lamborghini. Make a few, very-expensive cars, sell them to rich people, have a profit, and call it a day. But selling $200k roadsters isn't going to switch the whole world to sustainable energy. For that, you need to sell less expensive cars, and you need to make a lot of them.
The short-term goal is to gain a ton of market share. All revenue is shoveled back into additional development of even more vehicles. If you're trying to grab a big piece of the market, you better borrow as much money as you can so that you can develop additional vehicles more quickly.
This isn't the "local pizza shop" business model you learned in Econ 101. This is the Amazon model. Grab the entire market, damn the costs.
Some references:
Amazon Never Makes Money But No One Cares
Amazon’s epic 20-year run as a public company, explained in five charts
I'm a leaf on the wind. Watch how I soar.
Don't know if you have been in the business world, but capital is depreciated over the usable life of the investment.
Accountant speaking here. No capital investments are decidedly NOT always depreciated. In fact most companies prefer to avoid depreciating assets when they can avoid it. (depreciation does not always accurately reflect economic reality) Plus even if you do have a large amount of capex with depreciation attached there often are current period expenses attached to it that are not depreciated. For example if I buy a large press I would depreciate the press but I might not depreciate the cost of the riggers to place it, the upgrades to the electrical system to run it, the training of the labor to operate it, the slow productivity at first while we figure out how to use it, the extra workers hired to operate it, the engineers time to get it working, etc. It's not uncommon to have more costs that aren't capitalized (and thus depreciated) than the ones that are capitalized.
I think you are missing the point - a loss is a loss in Wall Street reported earnings. Special one time stuff is often very well called out.
This isn't special one time stuff for the most part and if you actually read their financial statements you would know that.
Wheeling out a ton of cash now in the build up for something in the future would be a footnote on current earnings.
Have you actually read Tesla's financial statements including the footnotes? They actually talk about issues relating to gross margin which basically are amortization of fixed costs from the assembly line and productivity improvements. They have this new and expensive assembly line which A) isn't running at full speed yet and B) costs a lot to operate no matter how many vehicles they make. Until they can amortize the fixed costs over enough cars per unit time they are going to lose money.
I truly admire this (or any other EM) company's ability to say "look over here, don't look at reality".
You might actually consider figuring out what reality actually is before making judgements about it. Tesla's situation isn't an uncommon one, just more high profile than most.
It's not even that business model.
It's called operating at a loss while you build out your infrastructure and develop your product. Granted, most companies don't spend 15 years doing that but most companies don't jump head-first into something so unique and difficult and heavily regulated.
Never mind they've had multiple successful products over those years and this was literally Musk's plan from the very beginning.
You can get rich if you own a politician, but you have to be rich to buy one in the first place.