Analyst Says Be Wary Of This (Margins) With Regards To Tesla Model 3

Tesla Model 3


Tesla Model 3

Tesla Model 3 at the initial handover event

In a huge and extremely thorough analysis of Tesla, Model 3 profit margin registers as the key point for the automaker.

Bernstein’s Toni Sacconaghi just released a whopping 112-page research document regarding Tesla. According to Barron’s, it’s a “mammoth black book” complete with charts and graphs and loads of data. Among Sacconaghi’s plethora of findings, he feels there’s no more important detail than the automaker’s realization of Model 3 profit margins. He writes:


According to Bernstein’s Tony Sacconaghi, it’s not likely that the Tesla Model 3 can enjoy the same profit margins of the more expensive Model S and X

“For hyper-growth companies, delivering healthy gross margins is critical.”

It’s important to note that Sacconaghi is an EV supporter of sorts. He’s gone so far as to say that electric cars will reach 60 percent market saturation by 2050. He refers to Tesla stock as “the most controversial and polarizing stock among all the stocks” that he covers.

His Tesla target stands at $265 and he gives it a Market Perform rating. Sacconaghi believes that the Silicon Valley automaker surely has some positive attributes, including its appealing brand name, direct sales model, first-mover advantage, and structural assets.

Aside from all of this, Sacconaghi is concerned that the Model 3 may not be able to reach profit margins guided by CEO Elon Musk. The scarier part of this concern is that he forecasts 70 percent of Tesla’s 2018 production will be focused on the Model 3, which makes perfect sense due to Tesla’s reality at this point. If a majority of production is not able to generate profit over an extended period of time, this could become a significant issue.

Musk has shared that the new, more affordable electric sedan will see a 25 percent gross profit margin, which mirrors that of the Model S and X. However, generally, automakers can’t pull equal margins from less expensive vehicles as that of higher-priced vehicles. Sacconaghi explains (via Baron’s):

“At a high level, we struggle with two simple facts about Tesla and the Model 3:

First, Tesla only has ~25% gross margins (and makes no money) on its existing US$100,000+ Model X and Model S offerings, while competitors at similar price points likely have 40-50% gross margins and operating margins of 20%+. The upshot is that it is difficult to see Tesla enjoying 25% gross margins on the lower-priced Model 3, particularly since competitors have dramatically lower margins on their lower-priced offerings.

Second, we believe that Tesla total Model 3 powertrain costs (battery + drivetrain) will likely amount to US$11,000+ vs. a typical ICE powertrain of US$3,000-US$5,000. In other words, all else being equal, Tesla is ~US$6000+ more expensive to produce, and will have smaller scale than its competitors.”

Source: Barron’s

Categories: Tesla

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108 Comments on "Analyst Says Be Wary Of This (Margins) With Regards To Tesla Model 3"

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Come discuss this on the new InsideEVs Forum by clicking on this link to its thread.

No, that’s why we have comment section here

Yes, here is fine also, but we have cookies at the Forum.

And an edit button. And emojis. And photo/video embedding. And sizing and color options for fonts. (I could go on)

An edit button? And you aren’t offering it on the main site? What are we if we post here, chopped liver? LOL!

Just put those things here… No need for a forum to talk about an article…

Au contraire. Article comments were never intended for back & forth discussions. I hope they completely disable article comments here as soon as the forum is stable.

…I can say with certainty that day will never come. InsideEVs has a huge/deep community, and the forums aren’t intended to replace that in any way.

The advantage of a vibrant forum is that “hot” topics, the ones that are of interest stay on top of the ‘pile’ for ongoing discussion.

Whereas on the site a story published in the today, could be 20 deep by tomorrow

So, the site is great for having discussions on the most current news over a period of 24-48 hours before moving on to the next item as a group…while the forum gives a greater priority to a particular popular topic – potentially over a longer time (while the latest news posted on the forum, if not ‘super popular’, can find itself dropping off/lost very quickly).

Article comments were never intended for back & forth discussions.

You’re 100% right. There is no “quote” function here, as there is at the new InsideEVs forum, because these comment threads were intended just for that: Comments, and not discussions.

“I hope they completely disable article comments here as soon as the forum is stable.”

Hmmm, I dunno, I think there is room for both. But I’m glad we finally have an appropriate “place” to go when a discussion thread generates an extended discussion. I certainly hope InsideEVs will facilitate switching conversations to the Forum when it’s appropriate, by adding some sort of button available to those posting comments which will allow someone posting a comment here to easily switch over to the Forum, where he can start a new discussion thread, and auto-generating a link to that Forum thread in a comment here.

Am I asking for too much? Maybe… I still hope we’ll get the often-discussed ability to vote comments here up and down! Just call me a cock-eyed optimist… 🙂

You have “meadow muffins” on your site.

Requires translation to ENGLISH

Cow droppings.

1) with a forum you can optionally be notified if someone response to your comment. This can provide some genuine interaction vs random.
2) And you have an ‘ignore member’ options which is a plus. There are a few commentators that rarely add value but popup just one a couple topics.

You can do all that with modern commenting systems too.

This Tony Big Oil & ICE Maker Recruit Shall Too, “Eat Humble Pie”

So what is Tesla’s path to profitability?

Same as it always has been.

Excellent margins on their vehicles

These margins are heavily boosted by their plethora of options like increased battery sizes, AWD, performance package, autopilot, and various other add-ons.

This is really no different from the other luxury/performance brands.

Also, building a lot of something like the Model 3 gives Tesla the ability to get much better supplier prices just like building the Giga 1 gives them an advantage in their battery costs and supply over their competitors.

These investments are costly of course but will pay off handsomely going forward.

If can’t make profit on the S how can you make profit on the 3

Tesla DOES NOT show a PROFIT, Because all monies made, are put Back into Tesla, to Grow the Company. Elon does Not Take a pay check, Nor free stock, he pays for his own shares. All these analysts are doing is ,attempting to confuse the public With this, “SHOW A PROFIT” BS.

They are making a profit on the Model S and Model X. Those profits are currently being funneled into Assets (including building new factories, new equipment, superchargers, stores, etc). In just the last year Tesla has more than doubled their Total Assets:

$12,592,397,000 (Q3 2016)
$26,043,705,000 (Q2 2017)

I’m sorry you don’t understand the difference between being cash positive/negative, and selling vehicles for a profit and using that profit to build Assets and Value.

First, Tesla only has ~25% gross margins (and makes no money) on its existing US$100,000+ Model X and Model S offerings, of it makes no since they are putting it back in production so where’s the profit then. No wonder they are burn up all that cash and looking for new capital with this new demo instead of focusing on the model 3

Will You’re Anti Tesla & talking like a drunk…I wouldn’t invest 10Cents in any company you ran..

I wouldn’t want to invest in tesla if their stocks are a bubble. Once the economy goes down the first stocks that will get hit our the luxury brands

Here’s Sound advice, “Don’t Hold your Breath for that., Because all Naysayers will eat Crow & Humble Pie for desert .

TSLA is indeed a volatile stock. And by definition volatile stocks are volatile and will go up and down in a volatile way. It certainly can go down swiftly with or without a Trump Recession. And it may go up swiftly with or without a Trump Recession, and may or may not recover quicker than other companies after a recession ends.

As such, investing in a volatile stock like TSLA should be done in a diversified portfolio where the risk is appropriate to the size of the investment in TSLA in relation to the size of the total portfolio.

As always risk==profits, and if you are risk intolerant, a good FDIC insured savings or CD, or a treasury note would be much safer than any volatile stock, but that safety would come at the cost of potential upside.

Based on your posts, I would suggest you start here:


“they are putting it back in production so where’s the profit then”

When you invest, the profit comes in the future. It doesn’t happen at the time you invest. This is true for all investments.

Tesla’s profits on investing into future production of the Model 3 comes when they sell the Model 3, not before.

For cars, the way professionals analyze investment is based upon the run for the generation of that car (typically around 5 years on average) before re-investing in a new generation. So if you are asking “where’s the profit” for the Model S/X, the answer is that it has been invested in creating even bigger future profits over the next roughly 5 years from Model 3 sales.

These sales are projected by third parties to Gross up to $120 BILLION dollars, and net up to $30 BILLION over the initial run of the first generation of Model 3 sales.

This is the definition of a company investing into their own future. Please google Secret Tesla Motors Master Plan. This was all explained over a decade ago. I’m sorry you are a decade behind on understanding the plan.

No, I dont understand the plan. It seems counterintuitive to me since they are a cash bleed and there stock so high with no profits that when the next recession happens a lot of people will lose thier money and Tesla might go into chapter 11, I hope not. Thanks Nix for making me understand

Your willful lack of ability to comprehend has been noted. You definitely should not invest in TSLA stocks, and are better off investing here:

“..they are a cash bleed and there stock so high with no profits that when the next recession happens a lot of people will lose thier money and Tesla might go into chapter 11…” Since I’m not a “financial guy”, and you’re throwing around financial buzz words as if you do, then perhaps you can explain something to me… and I’m not being snarky here; it’s something I’ve never seen explained: If Tesla’s stock price were to drop from what just about everyone says is a significantly inflated price tomorrow, down to a price much closer to what would reflect the company’s enterprise value, how would that be likely to cause the company to go bankrupt? The stock price dropping would make it harder for Tesla to borrow the money it needs to keep growing, and thus would almost certainly reduce Tesla’s fast pace of growth, but exactly how would the stock price dropping cause Tesla to start losing money… and I mean actually losing money, not the current situation where Tesla is investing money in future growth faster than it’s making income, which Tesla bashers dishonestly call “losing” money. Of course it’s actually an investment, so it’s ridiculous to… Read more »

“First, Tesla only has ~25% gross margins…”

If you knew more about the auto industry, you’d realize that “only ~25% gross margins” is considerably above the industry average. That fact also seems to have escaped the so-called “analyst” who wrote that piece of anti-Tesla FUD trash that this article cites.

“…(and makes no money) on its existing US$100,000+ Model X and Model S offerings, of it makes no since they are putting it back in production so where’s the profit then.”

I’m sorry you can’t understand the difference between “investing more money in future growth than they are currently making in profits” and “makes no money”.

It’s amazing how much kindergarten-level discussion of financial matters there is in comments here, especially when it comes from those who talk like they actually know something about the subject! 🙄

To see the true financial status of a company, you can’t just look at their assets. Have to also look at their liabilities. It’s called the “balance sheet”.

Tesla’s liabilities also went up from $7B to $18B – largely due to dodging paying their bills (Accounts Payable), short-term loans, and long-term loans (mostly issuing junk-bonds).

They issued that debt to build up a war-chest of capital to cover M3 start-up expenses. But that cash did not come from S or X sales profits. Their 2016 operating income after subtracting operating expenses from their gross profit was -$667M. They lost money last year. See link below for TSLA’s financials:

Wow, – losing half a billion is tough

Some companies operate at a loss forever and make nothing but money…$$$$$$$$$

HVACman — You are on the wrong page. Here is their balance sheet, showing quarterly numbers.

Yes, Liabilities have gone up along with Assets. But Asset growth has outpaced liabilities. The delta is profit being plowed back into the company.

You are making the same mistake of looking only at cash flow being positive or negative, and ignoring assets.

Because during the time cash flow was negative 667 million, Net Assets (Assets minus Liabilities) GREW by $2.5 Billion dollars.

Now, let’s do a test.

Do you understand that spending 667 million in order to build roughly $2.5 Billion in Assets represents making a net profit, and investing that profit into Assets?

Again, I’m sorry you aren’t able to see more than just the cash flow, and Liabilities and have failed to account at all for Asset accumulation greatly outpacing negative cash flow and Liabilities.

Hi, I have no stock, but I have a question (and I am not well read in financial matters).

Basically your thesis is that although they are borrowing heavily (thus their liabilities are rising), the assets are growing even faster. The only place where money can come from is from selling model S/X, powerpacks ect.

Thus they have to make a profit on them, otherwise the assets would decrease, not increase.

My question is why is their operation cash flow negative when they are making money? As I understand it, the operation cash flow excluded capital expenditures for model 3. It should basically be we sold cars and other stuff and got money. We paid for metal, factory&store upkeep, wages. The difference is money to invest back into company. But operating income for 2016 was negative 123 million (if I read correctly).

Your assumptions are false. This has been covered before many times.

I normally don’t comment on goofy stuff but this is quite extraordinary. The first mistake is the way you’re using the balance sheet. OF COURSE when you borrow or issue new stock assets go up. A balance sheet has to balance. If you borrow fifty bucks then you enter fifty bucks on the liability side and add fifty bucks on the asset side. This doesn’t mean much of anything, much less that the business is more valuable after it has borrowed. The fact is Tesla is on track to lose $10B dollars. IOW it has sold stock or taken loans for $10B dollars. That is a sea of red ink. The second mistake is on the gross margin. Tesla has a higher gross margin because it calculates gross margin differently than other manufacturers. Transfer costs like R&D that Tesla treats as operating costs and follow the practice of other manufacturers and treat them as Cost of Goods Sold (COGS), and Tesla’s margins aren’t anything special. (And BTW, every car manufacturer invests in future vehicles. Tesla would only be different and more highly valued if it didn’t). Toni Sacconaghi makes some obvious points. No idea why you can’t follow his reasoning.… Read more »

Asset growth outpaced liabilities by 2.5 billion. So no it is not just borrowing bring up both

Assets outgrew liabilities by $2.5b from 9/30/16 to 9/30/17 because they sold newly printed shares for cash and issued newly printed shares to acquire SolarCity.

It was NOT profits.

You can do three things with earnings (aka profits):
1) Pay them out as dividends
2) Use them for stock buybacks
3) Retain them for capital investment, etc.

When you retain earnings the “Retained Earnings” line on the balance sheet increases. Tesla’s “Retained Earnings” are negative, and decrease further every quarter. That’s because THEY MAKE LOSSES, NOT PROFITS.

Doggy, a company issuing stocks is not an asset. So no, that is simply FUD.

But let me get this straight. You are claiming that the only reason for billions of dollars being added to Tesla’s balance sheet is all from Solar City???

The same merger folks like you blasted repeatedly for how it was going to bankrupt Tesla because their Liabilities were so high that Elon had to bail them out?

But now you are claiming that Solar City brought billions more in Assets to the company than they brought in Liabilities, improving Tesla’s balance sheet by billions, instead of crushing Tesla’s balance sheet and burying them in debt?

Very interesting. If you can get a bunch of the usual suspects to agree to that theory, I’d be happy to dig into it and see if it holds water. As long as you all agree that it would show that Elon made a good business decision if your assertion actually holds water…..

Their 2016 operating income after subtracting operating expenses from their gross profit was -$667M. They lost money last year.

You mean, they borrowed money last year. Since Tesla is investing what it borrows in future growth, why do so many people keep calling it a loss?

I’m sure Tesla’s accountants know where that money was invested. Unless my understanding is fundamentally wrong at a very basic level, then little if any of that money has been “lost”!

Liabilities have increased by the same amount over the same period. The balance sheet remains very weak, and funded through stock sales and bonds. Please stop spreading untruths.

That is incorrect.

Assets: $26,043,705,000 $12,592,397,000
delta of 13,451,308,000

Liabilities: $20,937,953,000 $9,911,909,000
For a delta of 11,026,044,000

Assets have outpaced Liabilities by approx $2.5 Billion between Q3 2016 and Q2 2017.

Like I said, profits are going into building Assets. I’m sorry you can’t even be bothered to even look up the numbers for your false claims before dumping them here.

Four Electrics is correct. You are not. You can see this here, where the balance sheet is shown over time.

Just look at the “Retained Earnings” line. Definitely a super weak balance sheet.

First you are looking at 2016 numbers. Second you also have to look at Total equity when you look at retained earnings. Total equity is growing much faster in 2017

Four Electrics is correct. You are not.”

Considering that nearly 100% of what serial Tesla bashers like Four Electrics and you assert about Tesla is either completely or mostly untrue, we have absolutely no reason to believe what you’re saying here.

You serial Tesla bashers have made your bed; now lie in it.

Emphasis on “lie”.

1. Ramp up to 5,000 units/wk for the Model 3 and drag the suppliers along with them.
2. Pause there for a while to make sure that issues like build quality and rework are minimized. Also work on ensuring gross margins grow from probably negative up to 15%.
3. Increase from 5,000/wk to 10,000/wk without causing issues.
4. Increase gross margins to 25%. 500,000 units a year and an ASP of $45,000 is $5.6B a year for GM. Their GM now are only about 2B/yr with the S/X.

Oh well gee if it’s that simple then this is easy…LOL…you do realize that every single step of your “plan” is a massively difficult financial it engineering problem that TSLA has no solution for yet, right?

You seem to be confused.

SpaceX is the company that’s doing things for which there has never been an engineering solution, like landing a booster rocket on its tail.

Tesla, contrariwise, is the company which seems to be doing remarkably well at following the path to not merely success, but domination of its market segment.

BTW — Your FUD might be more convincing if we had not been seeing the same B.S. over and over and over since Tesla started selling its first car, in 2008.

Go Tesla!

Tesla can gain better margins on their cars by options. All makers use options to boost price, but with Tesla it actually works. Think leather seats, body undercoatings, premium wheels, etc., with other makers vs. Tesla offering extended range and autopilot. Tesla offers a $35,000 M3 but few are going to order it like that. So Tesla will reap more profit from options simply because “Tesla chic” comes into play.

…and you didn’t have to weed through 100 pages to get that nugget. Well-known facts are out there:
Tesla is building a lot of factories across the globe.
Tesla is market-leading as the premium large luxury automobile manufacturer in sales(just ask the Germans and Japanese!)
Tesla is focused on expansion, not revenue, right now.
I wonder why those of us, in our fanatical pursuit of EV tech here at InsideEVs, are not the highly-compensated industry analysts. Some of us know manufacturing, some of us know engineering, and some of us know auto sales.

Uhh…Tesla is not building factories around the globe. That’s a plan, but the only factory that they are still performing construction on is Gigafactory 1. They haven’t chosen the location of Gigafactory 3 yet. And while Tesla is expanding, you need capital in order to do that, and borrowing is becoming more expensive, so unless Tesla wants to perform dilutive equity offerings, the only other alternative is to increase revenues to generating additional operating margins to fund those capital expenditures. I’d agree with the report’s author that Tesla is not going to be able to maintain Model X and Model S levels of gross margin on the Model 3, unless there is a fairly sizable reduction in drive train costs, which is really only possible via a reduction in battery costs. Given the spiking demand in battery demand from Power Wall 2, Power Pack and Model 3, Tesla could very well find themselves production constrained on the battery side of the equation. Hopefully not, but part of being a good investor is not being blind to downside risks. You don’t have to be a Tesla short to recognize that that Tesla is still operating in a high risk level scenario… Read more »
Brett — One think I don’t think you understand is that Tesla actively manages DOWN the Model S/X margins to be at 25%. When they exceed the 25% margin, they quickly either add content or cut prices, or increase range at a price delta smaller than cost. This has happened repeatedly. The term for this is “Agile Manufacturing”. It is not that Tesla can’t break 25%. They have multiple times. However, this is not their goal. Their goal is to deliver ever better products at (inflation adjusted) lower prices at their target 25% margin. Cash price on a base Model S 75D is 75K. Cash price on the 2012 Model S 60 was $67,400. Adjusted for inflation, that’s about $74K in today’s dollars based upon CPI. You get bigger battery, AWD, and more standard features for essentially the same inflation adjusted price. This is Tesla’s business plan for keeping margins at 25%. If margins exceed 25% targets, they turn around and give customers more for their dollar in order to adjust margins back down to 25%. The Model 3 will be managed the same way. They will not have any problem hitting this margin some time in mid to late… Read more »

Wow! Someone here actually gets it. Spot on.

“…borrowing is becoming more expensive…” Maybe that’s generally so, since the Fed finally started inching up borrowing rates some months back, but is it true for Tesla? The company increased its credit line a very few months ago, seemingly without difficulty. I think you don’t really understand just how eager investors are to throw large wodges of cash at Tesla! “… so unless Tesla wants to perform dilutive equity offerings, the only other alternative is to increase revenues to generating additional operating margins to fund those capital expenditures.” Or maybe Tesla can sell bonds. Or maybe Tesla can simply increase its credit line. Or maybe Tesla can find other sources of income, such as selling solar panels, roof tiles, PowerWalls and PowerPacks, and Tesla Destination Chargers. Or maybe Tesla can find innovative ways to reduce its overhead by extreme vertical integration and increased use of automation. There are a lot of ways that Tesla can, and is, increasing its income, and might be able to increase its profit margin in the near future. Of course it would be unrealistic to think Tesla is going to succeed at everything, but at least so far the company has managed to confound analysts… Read more »

The primary way that Tesla is now funding expansion is through negotiating some of the best supply chain deals in the industry. Right now when Tesla buys parts for the Model 3, they buy them on credit.

Credit terms that are long enough that Tesla can get they parts, build the Model 3, deliver the Model 3, and get paid for the car before they have to pay for the parts.

Tesla’s ramp-up will effectively be self-funding as Tesla enters the steep section of the S-curve.

The cash burn for the Model 3 will transition into earnings as Tesla goes through the S-curve and comes out the other side.

Could you please avoid clickbait-style headlines? Say succinctly what the story is about, and don’t try to lure people in with nebulous suggestions like “be wary of this”. Thank you. /rant over

Haha.. That’s the first thing I thought too upon seeing this headline. I half expected to be taken to a page with 50 ads and an arrow to move to a new page every few sentences with another 50 ads.

Ironically, I am not a fan myself…and its my job to control that sort of thing. I confess to not working this title myself/unintentionally letting it slip through (going to add a little ‘margins’ note in the title now). It wasn’t our style at all – my apologies, I dropped the ball on this one, will try to avoid a repeat in the future.

Thank you! I appreciate your attention to the style and presentation of the articles on the site.

My first concern is/always has been quality of the product – revenue and ‘clicks’ have always taken a back seat.

…not that we don’t like to make money for our efforts, or take pleasure when more people frequent the site (not saying that), but the thinking has to be putting the finished product first and to be open to suggestions and criticism to make it better.

My thinking is, if we do that…and readers can see that the quality and care of the coverage is our first priority, then those other things will/should take care of themselves.

I remember when I was working for Apple Computer Inc (yup the good old days)

and I remember the “path to profitability” talk

frankly as a young engineer I did not have a care in the world

I remember the resistance to: Portable computing (IE Laptops etc) Cellphones, PDAS, the Internet in general, home computing, etc etc.

haters gonna hate as the youthz say

All these examples were new markets. Tesla is competing in a established, very competitive market.

They are the only company with the advanced product line. In 5 years maybe others have caught up to compete on eye level but it’s far out and tesla remains a fast moving target with superior margins as they create the most value to the end user.

There is no other brand I would pick for day to day and long distance weekend trips driving, because of battery capacity and recharge time and autopilot and hepa filters and performance.

Also talking about tesla as only an automaker missed the bigger picture of energy generation, storage, automaton and logistics as well as ride share market.

It is actually interesting that you say Tesla is competing in an established competitive market. Because years after the Model S was released, there still is no “Model S Killer” on the market. So the only cars that the ICE car makers have to use to compete against the Model S are still their old ICE cars.

Reports of the death of Tesla have been greatly exaggerated.


“All these examples were new markets. Tesla is competing in a established, very competitive market.”

Isn’t that like saying that the consumer camera market was an established, very competitive market during the entire period of the digital camera revolution, from first to last? And yet, market leader Eastman Kodak managed to go bankrupt because of that disruptive tech revolution.

Do you really think we’ll see the same market leaders in automobile manufacturing, 15 years from now? Do you think none of the current leaders will be bankrupt by then? Do you think that no new company making EVs — Tesla or some even newer auto maker — will be among the market leaders by then?

Those who do not learn from history are doomed to repeat it.

“Tesla … will have smaller scale than its competitors.”

Tesla plans on producing 200K+ Model 3s in 2018. Few other competitors have a sedan model selling that amount or more. Toyota, Honda, Nissan, and Ford are only ones (Chevy is close with the Malibu). And NONE of those are EVs so Tesla’s direct competition is near zero.

Tesla expects a 25% margin on an average transaction price of $45K. If anything a margin like that is unexpectedly low for a car that is produced in very large numbers and was designed for ease of production. If average production cost of a car that seems to pretty much max out economies of scale is still north of $35K than that’s going to be a problem for firms like VW that claim they will bring much more affordable EVs to the market.

I expect at full production that gross margin will actually turn out to be substantially higher than 25%.

I think the margin for the $35,000 base version (which they will sell little to none of) is probably very small and as you state at $45k average you’re at 25%ish maybe. People running the rough numbers on the $45,000 price of the first production are showing that $7000 or so of the extra $9000 for the bigger battery is probably profit. Kind of like Apple does selling drive space on its phones. They charge $100 for a $5 part. Then after the bigger battery, there’s the other packages which most common is the $5000 or so upgrade. Assume like BMW that’s where the money is. BMW has perfected this. Once we get AWD and a performance package expect another $10,000. You’ll be able to order a $70,000 Model 3 before long and many will go at $60,000. I think in the end the average transaction price is going to creep over $50,000 and almost all that margin is produced in the extras with the $35k base being razor thin. Even at $70,000 there is no competitor though. If they can actually turn up the volume on production look out. The Germans will start to squeal like pigs. I don’t… Read more »

—Here are the facts about per car margins—-

Don’t know where anyone on this site are getting their per car gross margin, but Tesla leads the pack. See the above article. US car makers average around 6%.

Ram – those are operating margins, not gross margins. Tesla’s operating margins are negative.

“Tesla’s competition is near zero.”

Perhaps, but Competition is increasing!

However the certain reality is that Tesla’s Cash on hand is near zero.

…and the Desperately Seeking Alpha fudster shows his hand.

..oh 80’s reference..+1

Yeah, I think Tesla’s only got like $12 bucks left! They’re doomed!

“However the certain reality is that Tesla’s Cash on hand is near zero.


Perhaps there are a few unwary new readers here who don’t know that Desperately Seeking FUDsters is a locus and an online meeting place for Tesla short-sellers who are serial Tesla bashers.

But I think nearly all the Usual Suspects here, Disappointed, would find you citing that source to be quite… disappointing. Pointing to that certainly does not support your assertions! Rather, it calls your objectivity and your motive for posting here into question.

I think $265 is about right, of course Tesla’s stock is usually trading at least 6 months or maybe even a year ahead of where it should be, so you probably won’t be seeing $265 again.

Profitability is all about the options game and being the only game in town. Tesla’s cache is probably worth $100 of the stock value all by itself.
If the Model 3 can hit it’s stride, which will most likely be the case, Tesla is gold.

Arguments against them,Tesla, are flaccid, futile & fiction. It’s really just up to them.

Once Tesla gets Rolling, the stock will Surpass $1000.00 PS Unless the company decides to split the stock..


TSLA already has a reasonably successful Model 3 launch already baked into the price.

And the price won’t stay there when the Model 3 launch starts to succeed. It will just go higher as the future Model Y launch gets baked into the price.

Anybody hoping to buy TSLA based upon previous quarter’s sales numbers will have to keep waiting for quite a while. Institutional investors are buying and holding based upon where Tesla will be, not where Tesla was after the last quarterly reports were released.

No article mentioning margin would be complete without comments perpetuating the myth that Tesla “makes money but reinvests their profits”.

One more time, straight from the SEC filings:
It costs Tesla 75k to produce an average S/X
They sell it for 100k
They spend 25k on SG&A (mostly salaries of sales and customer service, plus corporate overhead)
They spend ~$10k/car in R&D

The “path to profitability” is to maintain gross margin for the Model 3 while greatly reducing the per car SG&A and R&D cost. As analyst Toni Sacconaghi notes, that will be very difficult because Model 3 battery cost is a HIGHER percentage of MSRP. And while it’s a little smaller than the S/X, the Model 3 does not have 50% fewer components or 50% less raw materials.

You make the same mistakes and never correct. For example you assign all r&d to just the model S cars already sold. No matter what the research was done for. Like m3. This is the same BS that gave us 100k Volts. Just stop

I did no such thing.

Had I assigned all R&D to S&X sales my per car number would be well north of $10k.

Tesla does not break out R&D by model, so we can only estimate. I allocate all 2011-15 R&D to Model S&X plus ~300m/year for 2016 & 2017. This gets ~2.5b S&X R&D vs. about 260k cars sold to date.

If Tesla can stretch S&X a couple more years without major redesign, R&D could decline a few thousand per car.

Model 3 should be much better, with similar R&D spread over 5x as many units.

Doggy — You have completely failed to understand Tesla’s business plan, and make the EXACT kind of mistake that I said.

Tesla didn’t do all that R&D on building electric cars just to use that R&D on the Model S/X. It was done with the express purpose to then use that same R&D to build the BlueStar/Model E/Model 3.

This is all in the Tesla Secret Master Plan from a decade ago.

You’ve done exactly the wrong thing. You’ve taken all of their R&D that they did with the express purpose of multiple lines of EV’s, and assigned it all to just the Model S/X.

I’m sorry you don’t understand Tesla’s well publicized business plan, and you don’t understand what Tesla’s investments go towards.

Nix, I understand (and support) Tesla’s business model. That has nothing whatsoever to do with the factual issue of profits and losses. You raise some good points about R&D allocation which I’d like to discuss further. But only if we can agree to speak the same language. So: 1. Do you agree Tesla loses money every year according to Generally Accepted Accounting Principles (GAAP)? 2. Do you agree Tesla would have GAAP losses in 2015, 2016 and 2017 even if R&D were zero? 3. What’s your R&D allocation for Model S/X, Model 3 and “other”. You didn’t like my allocation, but offered no alternative for critique. 4. Do you understand a company which raises $1b of cash by selling new shares increases assets by $1b with no increase in liabilities? If not, please explain how you think selling $1b of new shares affects the balance sheet. (Side note: we hit a nesting limit above, but the SCTY acquisition DID increase stated assets more than liabilities. That’s just basic accounting. Whether SCTY’s assets are worth the stated amount is open to debate. I’ve argued that they are, at least pretty close. But it’s very complex and dependent on a number of… Read more »
I don’t think we are going to be able to agree to the same terms of the discussion as long as you continue to focus exclusively on cash flow without considering Asset accumulation when you are sloppy about the term “profit”. There are many, many ways to measure “profit”. Each have different meanings. In the context you are using it, the correct term for when you keep using “profit”, is actually “positive cash flow”. As I’ve repeatedly explained, cash flow IS NOT the final and solitary measure of a company. Let’s put this into proper historical context. As I posted earlier, prior to the mid-1960’s, accumulating cash for a company was considered a horrible thing, and a huge waste of earnings, because 52% of that money would be taxed and taken by the fed. gov’t. CEO’s just didn’t manage companies (even massively successful companies) with the goal of generating huge amounts of cash. That is a fairly modern way of running a company that was a product of the 1980’s merger and acquisition craze. Up until then, ASSETS were king. A company’s success was measured on their ASSETS. The stock price grew with building factories and buying equipment and resources… Read more »

“In the context you are using it, the correct term for when you keep using “profit”, is actually “positive cash flow”.”


No, Nix, it is not. It is GAAP earnings. Very simple concept. Has nothing whatsoever to do with cash flow, or tax-basis earnings, assets, liabilities or any of the other concepts you raised. GAAP is the universal language. I can post my four questions on any investing board and everyone will understand exactly what I mean. No one will be able to make heads nor tails of the mess you wrote.

GAAP isn’t “the final and solitary measure of a company”. It’s the starting point for conversation. It assures everyone speaks the same language. Without that common starting ground it’s just a Tower of Babel with people making up their own definitions.

So you’re correct, it isn’t possible to have a meaningful conversation with you. Too bad, because I think you have some interesting insights.

You’ve just made the same mistake you always make.

GAAP is an accounting method. It is ALSO used to produce the Balance Sheet that I keep talking about. Your efforts to pretend that GAAP somehow applies only to ONE part of TSLA financials, while you intentionally remain blind to the Balance Sheet is why you are unable to fully discuss ALL of Tesla’s finances.

Please point out any part of this financial information that was NOT provided by GAAP:


If you indeed have friends in the market, if they are as willfully blind to Asset Accumulation on the Balance Sheet as you want us all to be, that might explain why index funds overall beat managed funds overall, with only a small minority of managed funds beating indexes.

Doggy, here is why you are unable to have this conversation. I will take your first question, and show you the problem with it:

“1. Do you agree Tesla loses money every year according to Generally Accepted Accounting Principles (GAAP)?”

No, I do not agree. Because GAAP is used to generate the Balance Sheet along with all the rest of TSLA financials. The Balance Sheet shows $2.5 Billion in Accumulated Assets for the latest quarters. While the Net Income was negative roughly 750 million over the same time period.

You want to ONLY talk about the 750 Million, while completely ignoring the 2.5 Billion. You are attempting to do so by pretending that GAAP was used for one, and not the other. That is a falsehood, and is why your repeated attempts to redefine the discussion down to JUST the 750 Million is a logical fallacy.

GAAP shows that Tesla built 2.5 Billion in assets while going negative by 750 Million. Those are the facts.

Again, building 2.5 Billion in Assets while going negative 750 Million dollars is NOT “losing money”. It is investing money to Accumulate Assets.

Losing money is when you have nothing to show for it. Investing money is when in the end of the day you have something to show for your money. Like Assets, or products on their way to the market, etc.

There is no “lost” money. You just remain willfully blind to where to go to find it. It is on Tesla’s books as Assets, right here on their balance sheet:

I’m a huge fan of the car and the company. With that said the economics of this business are mind boggling.

Just thinking this through out loud so please don’t take this as an attack that requires an emotional response. If the rules of any business are to apply to Tesla, I am led to assume that at some point they will need to have revenue from vehicle sales that will cover their R&D, sales and production expenses AND make a return on their investment. At this point, isn’t every dollar that’s coming through the door being used to pay some kind of bill and will be for the foreseeable future? Now, just consider that after they are done with model 3 production run, they will need more cash to re design the model x (2), model s (2) and the model y. Simply put, at what point do they make a return on their investment that’s considered normal for any large capital intensive company. Say 10%?

“they will need to have revenue from vehicle sales that will cover their R&D, sales and production expenses AND make a return on their investment.” Absolutely correct. “isn’t every dollar that’s coming through the door being used to pay some kind of bill”? Correct. Including paying bills that pay to build Assets. Like when you pay your mortgage and after 15 years you own your house outright. This is what Tesla is doing right now. They are accumulating assets. I should insert in here that before the Revenue Act of 1964, and further tax cuts, most companies focused on accumulating as much assets as possible, instead of paying 52% taxes. If as a CEO you accumulated cash instead of Assets, you were considered a very bad CEO who wasted money. That is why US companies sunk tons of money into building US factories, and why in the 1980’s they became ripe for hostile takeovers where corporate raiders looted their assets and sold off their assets. Because all the wealth of corporations had been sunk into building Assets like factories. Factories that needed lots of US employees to operate. Once Asset accumulation was thrown aside in favor of generating cash, US… Read more »

Niel said:

“At this point, isn’t every dollar that’s coming through the door being used to pay some kind of bill and will be for the foreseeable future?

I’m not a “financial guy” but I think that’s right, and will continue to be the case so long as Tesla is growing rapidly.

“…at what point do they make a return on their investment that’s considered normal for any large capital intensive company.”

I have no idea, but it certainly is nice to see someone ask questions which are actually pertinent and worthy of discussion, instead of this endless arguing over whether certain expenses should have been put in column “A” or column “B” of Tesla’s financial report!

By this logic, we should be using dirt cheap computers parts in our pc made from 20 year old tech with 20 MHz CPUs that cosy about $0.001 to manufacture per chip. Who would want anything different?

So funny to read on insideevs. A professional analyst with a rational view (he is known as being neither pro nor anti Tesla) writes an more than hundred page long analysis.
Then random dudes on insideevs come up without any professional background or deeper knowledge, think 10 seconds, google 10 minutes and write too many lines for their knowledge: “all wrong… blablabla assets… investments… actual profit…”. I bet most of you did not even read the analysis.

Thats the problem for online comments, you do not know, who the guy with that opinion is and what background he has. Most people on here have emotions for or against Tesla and for rational decisions these are not a good source.

“A professional analyst with a rational view (he is known as being neither pro nor anti Tesla)…” Well, he’s embarrassed himself rather deeply in demonstrating how clueless he is about the auto industry as a whole. Given that level of ignorance, I don’t really care if he’s pro-Tesla or not. He’s just bloviating, and should be ignored. “…writes an more than hundred page long analysis.” Piling B.S. higher and deeper doesn’t make it smell any better, especially when it rests on a platform of such ignorance. It’s still B.S. “Then random dudes on insideevs come up without any professional background or deeper knowledge…” See, that’s where you’re wrong. Many of us who have actually been paying attention over the years to how Tesla is operating its business, have a much wider and deeper understanding of both the auto industry in general, and specifically how Tesla is running its business, than some self-appointed “analyst” who doesn’t really care whether or not he actually understands that business, or whether or not it’s healthy; he’s just writing a report which says what his client wants it to say, based on that client’s current pumping or dumping stock investment strategy. “I bet most of… Read more »

Im sorry bro, you delivered no arguments, no facts.

Quote: “And I bet I don’t need to read the entire analysis to understand that someone who claims “competitors at similar price points likely have 40-50% gross margins and operating margins of 20%+”… is amazingly clueless about the auto industry!”
Porsche is meant by that as example, i don’t know why you tell that clueless. Catch some facts, come again.

1) If they meant Porsche, they cherry-picked a very unrepresentative car company to represent the automotive industry that Tesla will be competing against with the Model 3. The base price of Porsche lowest priced offering is more than double the TM3 incentive adjusted base price. If that indeed was their source of those numbers, you’ve just proven how they cherry picked outlier data far outside of industry norms and the price point of the TM3 and falsely represented it as what the TM3 would compete against.

IF you are correct, you’ve unwittingly debunked their claim.

2) What EV do you think Porsche is selling that will compete with the Model 3 in the same market sector?

Ben, can you point me to where YOU read the 112 page doc?

Because I can’t find it available to the public, it appears to be hidden behind Bernstein’s paid firewall. I’d be happy to debunk it page by page if you want to pay.

Do you know what the correct term is for a sensational press release for a product that can only be accessed behind a paid firewall? The term for that is an “Advertisement”. Bernstein is selling a product. The press releases are a teaser advertising the product that is behind a paywall that you have to pay Bernstein to access.

We’ve done our good faith best efforts, and you’ve been suckered in by essentially an infomercial. I’m not sure what you expect of us? That we should get suckered into their advertising shtick and buy their products just to debunk it?

I never said, that i read it. I searched for it too and was not able to find it, one news site wrote, what other news sites wrote and after a long chain it landed here on insideevs without proper links to the original source (journalism?). And then came some of you guys, who said without delivering reasonable facts all written in there is quote:”BS” and wrong. This behavior needs to be accused.

Until then i will stay with my opinion, that the conclusions, we get delivered on here, seem reasonable and the author is well known. I do not understand, how anyone can call it “BS” immediately.

Ben, you can buy blindly into the sales pitch for a product being sold by a company as much as you want. You can do that with zero supporting evidence and taking it on faith without reading it if you feel like it. But we’ve posted based upon actually reading best evidence from primary sources such as Tesla’s CEO and CFO that are to the contrary of what this sales pitch claims. If you question any specific claim, let us know and we can usually provide actual sources. For example, if you want to know when the CFO and CEO are projecting hitting 25% margins, please go to and listen to the Q2 2017 quarterly conference call. That’s called primary source information, and it was provided under SEC penalty if they had information otherwise. I’m happy to put that up against zero information except for a sales pitch for a study you didn’t read every day of the week. If you are unable to weigh evidence between information provided by the primary source with full inside information provided under the penalty of law, vs a sales pitch for unknown content, I can’t help you.
“For hyper-growth companies, delivering healthy gross margins is critical.” Thank you, Captain Obvious. 🙄 Gosh, where do I sign up to be one of these “analysts” who get paid for stating what everyone already knows? “First, Tesla only has ~25% gross margins (and makes no money) on its existing US$100,000+ Model X and Model S offerings…” I’m sure it will come as a great surprise to Tesla’s accountants and investors that the company is making no income on its best-selling cars. 🙄 “…while competitors at similar price points likely have 40-50% gross margins and operating margins of 20%+.” Well, clearly someone is paying him to write anti-Tesla FUD. I’m not a “financial guy”, but even -I- know that a 25% gross profit margin is significantly above the average for auto makers. I also know that no auto maker of any appreciable size is consistently making a 20% net profit margin, altho perhaps that’s different than “operating margin”. (See link below; actually, the graph at that site shows a median net profit margin of maybe 3-4%, altho that may be skewed because auto sales are down this year.) Once again, I feel compelled to ask: Just how stupid do they think… Read more »

The margins you linked to are net profit margins, not gross margins. Tesla’s net profit margin is negative; for example, -3.6% in 2Q17.

There’s nothing special about Tesla’s gross margin of ~25%. For example, Volvo has ~21% gross margin despite a part of retail revenue going to dealers and despite revenue of only $40K/car versus ~$90K/car for Tesla.

Additional points:

Net profit margin is definitely not the same as operating margin – no “perhaps” about it.

Investments in plant, property and equipment are capital expenditures, not expenses, and so have no effect on current profit.

R&D is a normal, recurring expense for all car manufacturers. Current models must generate enough revenue to cover the cost of developing new models and enhancements to existing models.

Going back to Volvo, last year the company had R&D expenses related to eight completely new models, including the S90, V90 and XC60 which are now in production and the XC40 which starts production next month.

Nonetheless, the company posted net profit of over $900 million in 2016 and $585 million in the first of 2017; up 67% and 25% versus the prior year, respectively.

Your article is about EBIT margins. EBIT is:
Gross profit – SG&A – R&D

Tesla’s EBIT margin is negative. This facts is not open to debate.

Please stop saying “I’m not a financial guy” then proceeding to make erroneous claims about Tesla’s financials. You’re a respected contributor here with the power to mislead. You have a duty to either learn the basics of the topic or avoid the topic.

Is there a law prohibiting a company from divulging its true “higher” profit margin? It seems naive to believe Tesla Models S profit margin is only 25%, especially after 5 years of production fine tuning.

Volt#671 + BoltEV

SEC rules require that all the numbers that Tesla provide be accurate to the best of their ability. The 25% number is accurate, because Tesla manages to that as their target number, adjusting price/standard features/battery size/etc to keep at that target number.

See Nix’s post on that very subject, upstream.

As it turns out, that’s not being naive; that’s understanding part of Tesla’s business strategy.