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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."
Silly me and my antiquated notion of profit!
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
But they make it up in volume.
The big difference is that much of the "loss" for this quarter is due to the fact that they stockpiled a bunch of cars. They wanted to make sure they didn't hit the 200,000 EV milestone in Q2 so their customers could enjoy the tax rebate for a little bit longer.
If you can understand the story, losses were high on purpose, because of capital investment, and now capital investment will be slower and production will result in profits. Production done using the equipment represented by said capital investments. Simple.
First off, here's the full post I submitted. It goes into much more detail:
Secondly: your Q1 number is wrong. Loss attributed to shareholders in Q1 was 20,8% of revenues, not 17,5%.
But again, companies aren't valued based on past revenue. They're based on the present value of future revenue. A past balance sheet may draw your attention to a company (for good or bad reasons), but it does not substitute for modeling the company's fundamentals. Which includes what margins they'll be getting on sales in upcoming quarters, what production numbers will be in upcoming quarters, etc, as well as properly handling deferred revenue and one-time costs. And as noted above, Q2 was full of them, all of them to the benefit of Q3 and beyond.
If you don't understand why the market is up over 9% after this report, you probably shouldn't be investing in this stock. The numbers in this report make it quite clear that Tesla is highly likely to be profitable in Q3. And this is the result of years of capex, R&D, and a long-hard scaleup slog. You pay, then later you reap the rewards. Not simultaneously.
Assuming ethanol comes from murdered children and the hydrogen from magic, hydrogen saves 132% more lives than ethanol.
From r/wallstreetbets:
That page is a schadenfreude laugh riot right now ;)
Assuming ethanol comes from murdered children and the hydrogen from magic, hydrogen saves 132% more lives than ethanol.
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
Would you rather some nerdier colour from the conference call? Okay, here's one.
We all know the story of how Tesla's original plan for GA3 (General Assembly 3) was to have an automated conveyor belt system transport parts from the warehouse to each of the assembly workstations. Unfortunately, it just didn't work; they had to tear it out and do the transport manually. However, when general assembly became a bottleneck, they built a whole new line (GA4) in a Sprung structure, partly out of scrap - including said conveyor system, which now transports the cars down the line as they're assembled.
What we found out today, however, was that they had a problem with the conveyor system in the engineering phase: since it was designed for transporting parts, not whole cars, it wasn't up to the job. It could hold a car fine, but the motors weren't strong enough to move it reliably. Their solution? Let gravity give them a boost. The GA4 line is built at a 1% downward grade, which reduces stress on the motors to within their design tolerances.
Interestingly enough, the Sprung structure solved the warehouse transport problem on its own. Since it's a long, narrow structure surrounded by roads, trucks could just back up to each workstation and unload their boxes of parts right there - no centralized warehouse needed, and no redundant unloading / reloading work
Assuming ethanol comes from murdered children and the hydrogen from magic, hydrogen saves 132% more lives than ethanol.
If they were concerned about the environment they wouldn't be "investing" in a company that makes $60,000 cars!
Right. Because a car's degree of compatibility with the environment can be fully determined by the price of the car.
Reality? how does it work again?
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.
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.
It's not that Tesla is the only company that has any knowledge of battery chemistry, or that US companies have a monopoly on battery chemistry tech, not even close. There are plenty of batter manufacturers in Asia and Europe who can compete there. It's more that there has been a race to secure the existing Li supply and the early birds (like Tesla) got the worm. People who decided to "wait and see if this electric vehicle fad leads to anything" are now having trouble obtaining Li for battery production. Estimates I've seen are that it will take something like 10 years to *begin* ramping up mining operations to extract the amounts of Li required to supply an electric vehicle (and grid storage/battery wall) duck curve. Those who made long term contracts for Li supplies have a huge head start.
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.
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.
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.