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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."
There are a lot of very big investors short Tesla. The carnage will be felt intensely.
Tesla On Track To Turn a Profit This Year
Unfortunately, the company's net loss rose dramatically as a result.
So sales are up, losses are up - but they're on track to make a profit? Really? Something's not adding up... Losses for Q1 2018 were 17.5% of revenues. Losses for Q2 2018 (just announced) were 17.9%. Increasing losses as a percent of revenue does NOT lead to profit.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
So sales are up, losses are up - but they're on track to make a profit? Really? Something's not adding up...
What's not adding up is that you're conflating recurring and nonrecurring expenses (NREs).
If all the money being spent now were recurring expenses - the money you spend on making a car in Q2 that you'll have to spend again to make another car in Q4 - then you'd be right.
But a LOT of that money is being spent on putting together the plant to make the cars. You do that once. Then you don't have to do it again (beyond maintenance as stuff wears out and the like).
Or at least you don't have to do it again until you EXPAND the plant to INCREASE PRODUCTION or BUILD ANOTHER TYPE OF CAR. (Guess what Tesla has been doing...) That's why companies have to spend a lot of money - that they get from investors - when starting up, that they don't earn back right away.
Their balance sheet for the quarter includes both the REs and NREs. If you allocate it ALL to the current production of cars, and project that into the future, you'll be 'way low on the bottom line once the NREs have been paid off and the plant is still making cars.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Fact check: Tesla purchased the NUMMI factory building in Oct 2010; no expertise was transferred. Toyota's most valuable equipment had been shipped out in April/May 2010, after the plant was closed; other on-site equipment was auctioned off In June 2010. Tesla purchased the "left-overs" parts and equipment worth 15M in Oct 2010, while the tooling cost of a new auto plant is around 1 billion...
I wouldn't say they purchased a plant, just the building.
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.
So sales are up, losses are up - but they're on track to make a profit? Really?
I haven't looked carefully at their financial statements but situations like that happen pretty often. What I suspect in this case is that Tesla has a lot of one time expenses during the quarter during ramp up which will not repeat in future quarters. So it makes the financials look worse during the current quarter than is expected for future quarters. There also are issues of inventory - you make the product and then deliver it but until Tesla gets paid for the car they have tied up cash (costs) in inventory. Cash flows in companies are very often quite lumpy and costs do not always track neatly with revenues.
Remember that there are a lot of fixed costs to running an assembly line. Fixed in this case means that they have to pay the same large amount regardless of how many vehicles they produce. A fixed costs is the same regardless of whether you make 1 unit or 1 million. So Tesla incurred a large fixed expense in building the Model 3 production system but until they can get the run rate high enough they cannot amortize this over enough vehicles to make a profit. As their production rate climbs their unit cost per vehicle will fall. Basically Tesla has to increase their gross margin on the Model 3 which will happen naturally if they can continue to increase their production rate and increase efficiency of the production lines. In the mean time their losses will look short term larger but should in future quarters behave exactly as Tesla indicates - IF they can execute the plan, which isn't a trivial concern.
Fun fact: Tripp has denied both knowing how to code or use any sort of hacking tools. Funny story, people dug into his claims and found his Stack Overflow account, Adafruit acccount, Scribd, etc, and found that not only does he know how to code, he was even helping answer coding questions for others.
Trip responded by deleting all of his old accounts.
Fun fact #2: Want to take a guess as to the only other thing on his Scribd account apart from docs on packet sniffing tools and the like? If you guessed "NRA gun documents, you win a prize!" When asked about this, he had the most hilarious alibi ever: why, he was only had the NRA gun docs to trade for Kansas guitar tabs! Because that's a totally normal internet trade commodity, dontchaknow!
Fun fact #3: Tripp has gone back and deleted all of his old alibi tweets, and the tweets where he admitted to having Tesla property.
Assuming ethanol comes from murdered children and the hydrogen from magic, hydrogen saves 132% more lives than ethanol.
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.
Sure, GM makes a lot of cars. But, there is no growth story for GM.
Probably true but there is a strong cash flow and dividend story from GM. It's hard to make a huge company a lot bigger in a short time period. But GM kicks off a LOT of profit and cash and the dividend yield right now is pretty good. A company doesn't have to grow at 20% or more per year to be a good investment.
But with Tesla, that's not just a possibility...its likely.
Sure, growing from tiny to bigger is a lot easier. But the value of a company should be roughly the net present value of all future free cash flows. There is no plausible scenario whereby you can make a rational claim that Tesla is going to kick off more free cash than GM within any time period not measured in decades. Even if Tesla has the best profit margins in the business (around 10% net) starting tomorrow it's still going to take them a LONG time to get anywhere close to a company the size of GM. Just because a company is a growth story doesn't mean we chuck all rationality out the window about its likely future prospects.
No other auto maker will be able to mass produce an EV in the next 5 years
I have a Chevy Bolt sitting in my garage that says otherwise. Nissan has sold over 300,000 Leafs to date. If that's not mass production I'm not sure you understand the term. Pretty much every major auto company already has put serious money into electrification but there still is a huge market (much larger than the EV market) in ICE vehicles for them to serve too. EVs are coming and I'm a true believer in them but it's not going to happen overnight and your claim that no automaker could mass produce an EV in the next 5 years is just clearly not true.
The reason for this is while the auto makers can make cars, they can't make the EV batteries.
There are plenty of battery companies and Tesla doesn't really make their own batteries either. Panasonic does the heavy lifting for Tesla on batteries. You were aware that Panasonic is the one that made the majority of the investment for the gigafactory right?
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.
You have your facts wrong on that. The big auto companies are working closely with battery makers and in many cases have strong partnerships. Tesla doesn't have the advantage here you seem to think they do at least not at the moment. Plus the state of the art in battery tech is progressing rather quickly so a lead today can evaporate tomorrow.
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.
I'm not a Tesla bear but there aren't nearly enough people likely to buy an EV in the next 5 years to justify Tesla's current market cap. Not even close. And I'm a huge fan of EVs and even own one. Tesla's stock price is based on hype and overinflated expectations. It happens sometimes. There was a lot of this during the dotcom boom circa 1999-2000. Eventually Tesla's stock price will come to reflect some sort of realistic expectation of their profit potential. But currently it is arguably a good company but a hugely overpriced stock.
Capital purchases don't have a huge impact on profits in the short term, although they do directly affect cash.
That's routinely not true. Capital purchases even when subject to a deprecation schedule can easily affect near term profits both directly and indirectly. For example a few years back our company bought a press for about $100,000. We then had to hire an employee costing about $50,000 to operate it, train the employee (more $), install the press (more $), reconfigure work flows and rearrange floor space, hire riggers, add electric service, add engineering time, and more. Even though we depreciated the cost of the press itself and some tooling, there were very substantial additional costs than cannot be depreciated that go with it.
Plus depreciation schedules vary and some of them are quite short which is often preferred by companies because deprecation schedules often don't very accurately reflect real world economic reality. If I outlay a bunch of cash for a machine then I'm out a bunch of cash for a machine and that should in many cases result in a hit to current period earnings even if GAAP dictates otherwise. I've often joked (semi seriously) that only an accountant would be foolish enough to think that inventory is an asset - in practical terms it's more akin to a liability because it ties up cash and other resources.
The cost of capital purchases are usually amortized over some period of time.
Capital purchases of tangible equipment are depreciated, not amortized. Functionally the same thing really but just being pedantic about the proper words. You would amortize an intangible asset like a patent purchase. Why they make the distinction has never been entirely clear to me since functionally it is the same activity. Finance and accounting are weird that way.