Fiat Chrysler Boss Again Rips Into Tesla, Says Economic Model For Electric Cars Doesn’t Work

Tesla

JUN 13 2016 BY ERIC LOVEDAY 126

Tesla Model 3

Tesla Model 3

In an interview with Car Magazine, Fiat-Chrysler boss Sergio Marchionne once again headed down his anti electric car road while taking shots at Tesla Motors.

It’s not clear to us why Marchionne refuses to get on board with the technology that’s changing the automotive industry, but he seems to continue his anti-EV fight, despite the fact that almost every automaker has now committed to plug-in vehicles.

Quoting Marchionne from the Car Magazine interview:

“This industry is at a crossroads.”

“I don’t think any of us has an idea as to what the right answer is. To me, the biggest issue is the impact technology has on what we are doing. Like the formation of a driverless environment, which is a mandatory future option and not even expensive.”

“All this stuff is here to stay, it is going to be available at the speed of light, so we must act like a flash.”

So, it seems Marchionne is accepting of new technology, but as soon as the discussion turns to electric cars, his whole mindset changes. Quoting Marchionne:

“Although the relevance of combustion will decrease, it will still be an important driver of mobility. Electrification may be the next big thing, but I’m amazed by the impact of Tesla’s new Model 3. With 300,000 orders in hand, their stock is up – again. It reminds me of the internet bubble. But where is the business model that will work in the long term? People should realize that there is nothing another company cannot replicate…”

Again, he’s basically saying that Tesla has done nothing special and is reiterating an earlier statement he made, which suggest that FCA could copy Tesla if it choose to.

Then Marchionne went on an anti-Tesla rant, comparing the automaker to iPhone and icons:

 “Welcome to the world of icons! I don’t make iPhones. I make cars. Why don’t I make the iPhone of cars? Because if it looks and smells like Tesla, I don’t know how to make that economic model work. There is nothing Tesla do that we cannot also do. We build cars, sell them and are still able to pay the bills. But I’m not even sure you can recover all of your costs – let alone generate a profit – through electrification. The answer is bound to be somewhere else, and the question is whether we are doing enough to try to explore that somewhere else.”

Let’s let Marchionne waste his time finding that “somewhere else” answer. In the meantime, Tesla will work hard to build hundreds of thousands of electric cars that have already been accounted for.

Source: Car Magazine

Categories: Chrysler, Fiat

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126 Comments on "Fiat Chrysler Boss Again Rips Into Tesla, Says Economic Model For Electric Cars Doesn’t Work"

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Oof what a troll. I guess there’s some bizarre entertainment value in that.

It should be noted, however, that Marchionne is one of those accounting/finance guys parachuted into top automaker ranks. He might actually know about cars less than you and me.

These guys, in the best of cases, generate short-term improvement for the companies they run at the expense of the long-term. In the worse cases, they actually engage in fraud in order to artificially boost the bottom line.

On top of being a financial guy, he’s an Italian supercar-head. The kind that lauds over Ferrari or anything else that chugs gas and reeks of mid-life-crisis.

He probably never thought there was a business case for the personal computer, cellphone, or flat screen TV either.

He appears to lack vision.

you can overplay these analogies. marchionne is not saying that electric vehicles won’t go anywhere, what he is questioning is tesla specifically.

This quote makes it sound like he’s against electrification in general.

” But I’m not even sure you can recover all of your costs – let alone generate a profit – through electrification. The answer is bound to be somewhere else, and the question is whether we are doing enough to try to explore that somewhere else.”

he also said that electrification may be the next big thing, so i interpreted the comment that you cited as being a short term view. namely, until the economics look a lot better, it is not clear that he is going to introduce a lot of products in the electric vehicle space.

people here seem to think that electric vehicles are going to take over the roads in the next 2 or 3 years. it will probably be a good 10 years before the technology is anywhere near stable for electric vehicles, so the market will remain immature for quite some time.

You make the same mistake Marchionne is making. That the electric drive train is not mature yet.

Tesla is devastating its competition in the luxury sedan segment because in that price bracket, electric drive trains are not only better, but also cost less than the ICE drivetrains MB, Audi, BMW and Porsche are making.

What is withholding the breakthrough in lower market segments is the price of the batteries. When the battery price is low enough to get a comparable sticker price in a lower price segment of the market, gas cars can’t compete anymore.

If you want to know when electric cars take over a market segment, you can compute the expected battery prices. In 2015 they ranged from $200/kWh to $400/kWh. You need at least 50kWh for a serious all-purpose car. The prices will decline by 14% a year on average. That is halving them every five years.

Tesla (Model 3) and GM (Bolt) thought a battery price of $200/kWh makes entry into the $35k – $45k bracket commercially sensible.

And…? You still say that the cheapest electric car with 50kWh is far from going to be a cheap car. Therefore it will take a long time (up to 10 years) until batteries are cheap enough for mass market and 20k$ cars. A cheap car drivetrain cost between 2000-3500€. To stuff 50kWh batteries into the same car you need battery prices of 60€/kWh or less. That price is expected 2022-2030 or roughly in 10 years.

In theory it will take 10 years to get that low of prices. But we are seeing prices already we weren’t suppose be seeing for another 5 years. That 10 year mark might turn out to be worse case. My biggest concern is will car makers be able to produce enough cars one the damn breaks.

There are lots of spots for CEO’s who have talent putting lipstick on pigs, like DeNysschen and Marchionne. I’m not that offended by the guy because Tesla really is that unique. Musk’s shareholders are wholly different animals than these types are used to. Most actually do want at least a medium-term return on equity (like income?), and to think about losing money for years isn’t a program they’re allowed to be a part of. Almost like there are bankruptcy CEOs and tech growth CEOs.

IEV ran the story today about Shark Tank, and it was apt because Tesla is basically still a Venture Cap (VC) company, but with outstanding publicly traded shares. Equity calls? Musk is doing the whole enchilada in the public domain. He be-like askin’ for Model 3 deposits, and we be-like crowd funding him ‘n sh!t.

Yeah, Marchionne doesn’t get that.

Marchionne is a typical corporate narcissistic sociopath. The thing such people hate the most is being made insignificant by other people achieving real results and success.

The guy is the automotive equivalent to Trump: He speaks in broad generalities, criticizes everything, but offers no actual plan or solutions.

“People should realize that there is nothing another company cannot replicate…”

O RLY?

All you other companies have had years and none of you have been able to make anything close to a Model S.

But please . . . give it a try. The more, the merrier. I agree that EVs were a very tough business . . . but now that cells are down below $200/KWH, it is viable industry.

To be fair, Fiat-Chrysler can replicate Tesla’s quality control quite well, lol.

Seriously, if Tesla ever figure out how to build a reliable car then they will dominate the auto market for the next 50 years.

Poor Sergio, he was basically given what was left of Chrysler, is rolling it into Fiat, and now is complaining his costs are too high. While trying to contract out the popular DART and 200, which get pretty good reviews currently.

Granted, Tesla leads a bit of charmed life currently. But GM, Nissan, and Ford do seem to make mainstream models that the public wants, and do it profitably.

Whether Chrysler is ‘too small’ as Sergio always complains ‘to compete’ is rather a moot question when you are trying to get rid of your best selling vehicles as fast as you can.

At least GM, Nissan/Renault, and Ford to differing extents want to be in the EV business and make an honest try of being in the car business in general.

I was going to include BMW, but lately their ’emphasis’ has been on ‘autonomous driving’, and the ev stuff has been put on the back burner. That is per THEM, btw, but can’t find the link.

The Dart and the 200 are far from being popular or getting good reviews. Chrisler is having to knock off $6500 just to move any 200s at all….

Not to mention BOTH of those vehicles are being discontinued in lieu of SUVs and trucks. Yep, Marchionne only worries about the bottom line right now rather than the future.

According to Consumer Reports Tesla builds a more reliable car than the Mercedes S Class or just about anything from Fiat Chrysler.

When you are on the bleeding edge it is more difficult to lead the industry in “issues” per car.

If you are Toyota, and 99% of your cars have the same technology the last 10-15 years it is much easier to have the least number of problems per car.

Also, keeping quality the same while increasing production 40%-60% per year is also quite difficult.

As those increases come down,as they eventually will, defects per unit will come down.

It is not rocket science. Even if was Elon can figure that out too.

CR gives Tesla the highest reliability rating of ANY reliability survey.

Unfortunately, all of the available surveys have deeply flawed methodology, but CR’s is among the worst since they poll only their readers. Both selection bias and confirmation bias abound.

Right. If you don’t the results of something just make claims of flawed methodologies.
It least it makes you sound smart.

@Jacked:

Your first statement was wholly untrue — did you perhaps accidentally write exactly the opposite of what you meant to say?

Your second makes no sense. At all.

“CR gives Tesla the highest reliability rating of ANY reliability survey.”

No it didn’t.

It GAVE Tesla the highest test score which isn’t based on reliability survey. After the survey is out, Tesla was removed from CR’s recommended list and soon put on the “avoid list”.

CR did give the Model S the highest score of any car, on its test drive report.

Yeah, maybe “Jacked” confused the test drive report with CR’s report on its reliability survey. Two entirely separate things… and obviously car owners don’t count reliability as everything, or CR wouldn’t also be reporting that Tesla car owners have the highest satisfaction rating (98%) of any auto maker’s customers.

Tesla’s quality is improving faster than its competitors’ offering of competitive cars. If you have to choose between a Tesla car in 5 years versus a Fiat/Chrysler I’m not sure it’s a hard question to answer. One is leading and the other is confused.

The Model X indicates Teslas quality is getting worse.

Consumer Reports also reports too many problems with their Model S to recommend the vehicle.

The talk about being financially viable is just mud slinging, no new car model is financially viable from the word go. I worked with some ex-Toyota guys a few years ago and they said that the pay back on a new car factory is about 25 years so Tesla are not making a massive profit at the moment, neither is any car factory under 5 years old. As for any of the big car companies being able to replicate Tesla, yes they can, I can’t see why any of the manufacturers can’t cut and paste Tesla’s model. It would probably cost them a lot less to do it now compared to when Tesla did it 5 years ago. The problem is time, Tesla have a 3-5 year head start, if Fiat want to beat them at their own game it will take massive sums of money to catch Tesla. Nissan or GM could do it as they are not that far behind, they have the supply chain and some series real world experience. An electric Nissan GT-R could compete very well with a similar spec’d Model 3 for instance but Fiat? what to they have in this space? nothing –… Read more »

Just_Chris said:

“I worked with some ex-Toyota guys a few years ago and they said that the pay back on a new car factory is about 25 years… not making a massive profit… neither is any car factory under 5 years old.”

I can certainly believe it takes 5 years or perhaps a bit more to earn back the investment in a new auto assembly plant, but I suspect the first part of what you said there has been confused with the cost being amortized over 25 years. If it actually took 25 years for a new auto assembly plant to pay back the construction and startup costs, then nobody would be mass producing cars.

The problem isn’t tech but economy, that is what he is talking about. Everybody can replicate tech, Tesla doesn’t have any special patents, barriers to entry, or anything unique, rather the opposite, and such “head starts” can disappear very quickly when competitor shows better product. E.g. Blackberry was quickly pushed away by iPhone.

Fiat-Chrysler as any normal company can’t replicate financial pyramid that allows Tesla to sell low volume cars while burning couple of billions a year. It doesn’t make sense to turn existing, good standing company into some cult to cover losses.

Still, some companies are ready too loose money for a while expecting something in the future. E.g. Daimler recently announced 7 billion spending on it. But it is just spending, no expectation of braking even any time soon.

do you actually expect the guy to say: “we can’t compete with tesla”??? i mean, if he said such a thing publicly, he would get fired.

One approach would be to say nothing.

“Better to say nothing and be thought the fool than to speak and remove all doubt.”

it is his job to put his company in the best public light. you don’t do that by merely saying: “no comment”.

But he says “We can do what Tesla does” while releasing a compliance car with short range, no DC charging, and has been recalled 4 times.

This is why Fiat keeps trying to “merge” (sell itself off) to a larger car company.

They are so technologically behind that their only hope for survival is to be absorbed into a larger company who already has an EV/PHEV inventory of cars.

WOW! How screwed up is that? He actively wants to be the Nokia of EV car revolution. Does he not know how that ended?
This sounds EXACTLY like Nokia welcoming Apple in 2007 and claiming that they won’t be around making phones longer then few years.

Maybe he can get Microsoft to buy Fiat-Chrysler.

electric-car-insider.com

ROTFL

Best line of the month!

They might actually do that once Apple launches their car 🙂

Google has dibs first. It’s worth it for a few minivan patents, maybe. 😉

Nokia?

It also sounds like Apple welcoming IBM to the desktop computer business in 1981.

(I worked at IBM at the time; we thought that ad from Apple was hysterical.)

Bad example. Last laughs and all…

Not a good example. Nokia made one huge mistake, which was not investing enough in a standardized app market. They actually embraced native apps on the Symbian S60 platform from the get go, unlike Apple which claimed web apps would be enough, and only gave up after a year of kicking and screaming by devs and consumers.

Aside from that mistake, Nokia certainly made good, high quality smartphones, at better margins than anyone else (they had better margins in Asia than the Korean manufacturers); however, that mistake alone killed them.

Musk only want to sell Tesla in a few years, not important if they are really profital, its only important that it looks profital for the shareholders.

Tesla has 8 BILLION dollars in assets.
It’s not a tiny startup any more.

LOL!

You “know” that’s true because you read it in a Tesla basher post on Seeking Alpha, right?

What rubbish.

Shareholders have a funny way of looking at the bottom line. They use accountants instead of reading blogs.

All this meatball thinks about is making money.

Elon thinks about bettering the world.

Different between an intellectual mind and a mind with only dollar signs in it.

He’s not even good at the $$$$, or the Lira.

You are aware Italy has the Euro since many years now, right?

Can we please leave out things like “meatball” from the discussion? It’s juvenile and offensive.

I think “meathead” would be more appropriate anyway.

“There is nothing Tesla do that we cannot also do.”

Lol…He said it all right there…

Did Sergio work for Kodak before?

The man’s viewpoint is a thread for FCY, FCY is of vital importance to Italy, of vital importance to EU..

The other Italian hotshot was hired by FF recently. What is wrong with those guys?

“What is wrong with those guys?”

Some people, as they age, lose the ability to cope with change. It’s called “living in the past”.

“There is nothing Tesla do that we cannot also do.”

Maybe so but Tesla ARE doing it, you are not.

Exactly.

He isn’t doing it because he thinks nobody can earn money with it, not because they can’t do it technically. Isn’t that hard to understand, right?

Talking is easy, I can do anything I want as long as I don’t have to prove it. Nissan, GM, Volkswagen and others think they can make money from EVs, FCA can’t even make money from gas cars. I think the problem is in their end.

Fiat 500e driver here. I can confirm first-hand that Sergio CANNOT do it technically. Everything that Bosch did on this little EV works great. The parts Chrysler did–particularly coding the software, and training service technicians–are a dumpster fire. I’ve spoken with the former software chief for that car, and he’s diplomatic about it, but I gather he walked away from Fiat Chrysler in disgust. He’s working for the Chinese now, incidentally.

(BTW, this shouldn’t discourage anyone from getting a 500e. After three years worth of software updates and recalls, it has become almost reliable, and it’s so charismatic and fun to drive that you’ll forgive the occasional computer brain-fart.)

He’s also missing the point; we want all car makers to make electric cars, compete, make profits, continue long term and clean-up the environment.

Particularly the last, which if we don’t do, we may not be around.

If he doesn’t electrify, then stop buying Fiat or anything related to it. The hell with him.

the “we” to whom you are referring is the small coterie of ev enthusiasts. most people want transportation that is reliable and convenient to operate at the best price. they don’t care whether it is gasoline or electric.

the marketing challenge for electric vehicles is to compare favorable against gasoline vehicles with respect to the key buying attributes that are of importance to consumers.

for example, a big drawback to bev’s is recharge time. battery recharge time does not compare favorably with gasoline refill time. granted, ev enthusiasts will always want to paint “sunny day” scenarios in which recharge time will not be a problem but merely saying that a bev can cover 90+% of your driving needs still raises questions about the other 10%; questions that you don’t have with an ICE.

Well, of course it is much easier to make a profit if you don’t clean up the mess you did along.
What’s new here?

Marchionne’s one and only goal is to sell out.

The problem for him is that the industry is in a massive “change cycle” (autonomy/electrification) … so a run down book padded “old school” auto company like Fiat/Chrysler become less attractive with every Tesla sale/reservation.

+ 100

He couldn’t give that old nag of a company away much less sell it. It’s a broken down vestige of another time.

Running a company, riddled with recalls, investigations, poor workmanship, and a hodgepodge of lesser gremlins, that plaque that company, how can we rely on the views of Sergio M. concerning how to make money in the car business?

He is correct though when he extrapolates that the car industry needs to consolidate.
It needs a brush fire, to clear out all the dead wood, which is coming in the form of the ev revolution led by Tesla.

One has to wonder with a bit of a sad smile, what he will be saying in 2019, when Tesla is well on their way to completely delivering all the current Model 3 pre orders, and their order books for more of them is overflowing, and a Model Y is announced, a New Roadster is coming, and an Electric Pickup is just around the corner at Tesla Motors! By then, with more than (I estimate) 10,000 Worldwide Superchargers, and over 20,000 of there own Destination Chargers, plus access to all other Public EV Charging infrastructure- The viability of being onboard with Tesla, might finally strike him as the way to go – and see him partnering with the Supercharging network as they bring out something decent, with 250 miles AER!

the writer of this article has grossly mischaracterized what marchionne is saying. as i read the quoted comments it is apparent to me that he is not speaking as an ev enthusiast but as a businessman. from that perspective, what he is saying sounds quite reasonable to me. in fact, it doesn’t sound all that much different from the kind of stuff that bob lutz has been saying. i share many of the same sentiments.

tesla does remind me very much of a “bubble” company. the phenomenon of people camping out overnight to make deposits on a car where they don’t know exactly what the car is or when they are going to get it does remind me of an iphone introduction. there does seem to be a cult around elon musk.

a business person doesn’t think in terms of the latest craze or fad but in terms of “going concern”. with all the stuff going on with regard to tesla and with outsized valuations on a company that is not turning a profit (a very 1980’s phenomenon), the rational mind does have reason to wonder if there really is any there there.

Yep, just like the iPhone was a bubble in 2007.

“There is no reason for any individual to have a computer in his home.”

Ken Olson, president, chairman and founder of Digital Equipment Corporation (DEC), 1977

That sort of eventually came true, as phones are really computers, but of course back then he was referring to a desktop.

No, no it didn’t. Your home has many, many computers in it. Your DVR box, for example, likely has more CPU and storage than anything that DEC made in 1977. Heck, even my EcoBee3 smart thermostat probably does.

LOL…I have 11 computers in my home including 2016 Leaf and tablets.

Just the LEAF probably has >10 computers.

“no comment” said: “…with regard to tesla and with outsized valuations on a company that is not turning a profit “no comment”, I know you’re not a Tesla basher, so it greatly puzzles me to see you repeated the Tesla basher mantra that Tesla “is not turning a profit”. As a reminder, Tesla earns a gross profit margin well above the industry average for auto makers. What Tesla is not, is cash flow positive. Let us please not confuse “investing more in future growth than they are making in profits” with “not profitable”. The fact that Tesla has to keep borrowing money and/or sell more stock to get the capital they need to keep growing the company at a rapid pace, doesn’t magically cause the profits they make to vanish. If Tesla wasn’t trying to grow, if it was content to stay the same size it is, then it would be keeping those profits (or giving them to shareholders as dividends), and nobody would be saying silly things like “Tesla isn’t profitable”. And it’s just as silly to claim Tesla is a bubble company as it was to claim Amazon.com was a bubble company. No, Amazon.com kept spending more than… Read more »

I am about as pro-Tesla as anybody on here, but Tesla does not make a profit. Tesla makes a ~25% margin on the MSRP of each vehicle sold. To make a profit, that 25% margin would need to cover all of the engineering staff, management staff, sales stores and staff.

It doesn’t cover that right now.

Capital expenses for growth drive the cash burn even higher.

Josh Bryant said: “To make a profit, that 25% margin would need to cover all of the engineering staff, management staff, sales stores and staff. “It doesn’t cover that right now.” Citation, please? I’m certainly not a “financial guy”, but I don’t have to be to note the meaning of a pretty basic financial term: “Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.” If Tesla is making a gross profit margin of ~22-25%, then that certainly ought to include the salaries of all of the engineering staff, management staff, and sales staff. Now, when you say “sales stores”, if you mean the cost of construction for those, then I wouldn’t expect the gross profit margin to include that. It certainly should include the cost of operating and maintaining those stores. In other words, “gross profit margin” should include all ongoing operating expenses including salaries. Startup costs, including construction of new factories and new stores/showrooms, as well as the cost of expanding the production lines at the Fremont factory, so Tesla can ramp up its production… I would expect those costs to… Read more »

tesla is a publicly traded company. that means that they have to publish their financials. if you know how to read financial statements, you can find out for yourself.

Tesla does not account this way. Gross profit is defined as the sales price – cost to build the vehicle.

Here is the link for last quarter:

http://files.shareholder.com/downloads/ABEA-4CW8X0/2161383705x0x889927/27EE2FDA-9C77-4D6A-8CEE-E8DFE45227BA/Q1_2016_Tesla_Shareholder_Letter.pdf

There are no page numbers, so just scroll down below the letter to the first page of the financials. I will just pick a few of the numbers that we are discussing here (so not the full financial statement).

(In millions of dollars)
Automotive Sales – 1,026
Services Sales (Mostly Tesla Energy) – 121
Total Sales – 1,147

Automotive Cost of Revenue (how much it costs to build) – 779
Services Cost of Revenue – 115
Total Costs of Revenue – 895

Sales minus Cost of Revenue = Gross Profit = 252

Operating Expenses
Research and Development – 182
Selling, General, and Administrative (Stores, Superchargers and management) – 318
Total OpEx – 501

Gross Profit minus OpEx = Loss from Operations = 248

IF Tesla stayed in the luxury business, like an electric Porsche, then their R&D and capital expenditures would be minimal, thus tipping that balance.

Once Tesla has the Model 3 producing at the targeted volume, I would expect the company to be profitable (2020, or 2022?).

If they are still in the red at that point, I would be worried.

Similar to DoggyDogWorld below, I am not saying that Tesla has a bad business model, quite the opposite. They are still in startup mode and have had no issue raising additional capital.

As long as they continue to use the capital wisely, developing the technology and growing the company and manufacturing, it is a wise investment.

I was just trying to clarify the fact that Tesla does not currently make a profit, even if you remove capital expenditures.

tesla is a high risk undertaking. there are a lot if “ifs” when it comes to actually selling, let alone delivering, the volumes being discussed – i don’t consider $1000 deposits from fanboys who camped out overnight to be the same as “orders”.

where i do question the tesla business model is on the question of how well the direct sales model scales. at present, there is not the distribution and support structure in place to support high sales volume. putting that stuff in place is going to be very expensive. the way that tesla has been raising capital these days tells me that, unsurprisingly, they already know that.

If you think it is “very risky” for Tesla to build out cars for hundreds of thousands of people who have put down $1K, how do you evaluate the risk for an old 2nd Tier ICE car company who has no deposits, and fails to respond to Tesla’s sector leadership?

Personally, I believe that is the truly risky behavior in the long term.

Sure, it is possible that Tesla may fail, just like every other company in the world. But the chances at this point of EV’s failing keeps dropping with every battery advancement. And a company that bets against the electrification of the ICE drivetrain is taking an even riskier path in my opinion.

If you are looking for a zero risk company, you won’t find one. There is no such think as a zero risk investment. Even holding your money in cash has unique risks.

the thing about ICE cars from established car makers is that the distribution and support networks are well established. at present, tesla’s distribution and support network is highly questionable for high volume sales. the market segments for ICE vehicles are well established. there are risks with each product introduction but the market is not an early adopter market as is the case with BEVs. you’re a fanboy, like apparently many on this forum are. the problem with the fanboys is that the people who seem to want to post the most commentary here are people who don’t actually buy electric vehicles. tesla can’t maintain a going concern on the strength of fanboy postings: people have got to actually buy their stuff. tesla, on the other hand, has “skin in the game” so they have to think about risks while people like you don’t have to do so. the problem with the depositors is that they plunked down money based on their fantasies about the model 3 but without knowing exactly what they were going to get or when they are going to get it. when the buying process is that ill-thought out, i am skeptical about how many of those… Read more »

Josh, yes Tesla has an operating loss, but with that operating loss, they have also created a company with a market cap of over $30 Billion dollars.

Another term for market cap is “Wealth”.

Tesla has been creating Wealth by building a company by plowing their per-unit profits back into building infrastructure and developing future products. Creating Wealth is also another form of Profit.

It is a mistake to look at a young growth company who is constantly doubling sales on new product development, and analyze it like it was GE or 3M or any of the DOW 30.

My comment was not a statement of Tesla being a good or bad company. Tesla is an awesome company and will make massive profits one day.

My comment was to clear up the fact, currently Tesla does not make a profit selling vehicles based on their own accounting measures.

Push-Pullyu asked me to provide a citation to the fact that the Gross Margins on sales do not cover Tesla’s Operational Expenses.

Again, “Profit” can be defined many ways. If you simply mean “Operating Profit” in the narrowest sense of one single measure of a business that in no way encompasses all aspects of a company, then you are correct.

Operating Profit was specifically what the comments between P-P and I were discussing.

Josh, the OP and Pushi was all over the place, it was you and others in this thread who specifically re-defined the terms down to just “Operational Profit”.

That is the problem with the re-framing of the debate on profitability. The straw-man is always redefining the definition of profits down to just one simple measure of book profits on operations, which by no means is the final word on profits.

To address your comment on market cap as a “wealth”. This is true, but at some point Tesla will need to grow the financial statement into that valuation.

It looks like 2020 – 2025 is the timeframe that Tesla will transition out of startup mode.

I agree with the fact that for Tesla’s investments in their future to be profitable, they will actually have to build and sell the cars they have already invested into building. Since reservations far exceed anything any car company has ever seen, that doesn’t seem to be their biggest challenge going forward. When it comes to the idea of Tesla no longer being a growth company in 2025 or so, I disagree. That analysis would assume that Tesla will stop developing new product lines after they build the Gigafactory and finish releasing all the cars that they have announced or hinted at (models 3, Y, and Gen II roadster). I don’t think that is at all what will happen. For example, VAG Group builds over 100 different lines of vehicles sold under their Audi, VW, Skota, SEAT, Bentley, Bugatti, SCANIA, Ducati, and Lamborghini badges. I don’t see Tesla stopping with just the vehicles they have already talked about. There is a reason why VAG builds so many different models. It is because there is a market for each of them somewhere in the world. Tesla will continue rapid expansion well past the 2020’s and 2030’s as they grow into a… Read more »

I implied, but did not state directly that I’m predicting that Tesla will follow in the footsteps of other major car makers. They will buy up small and/or failing ICE brands, and revamp them with Tesla innards.

Much like Tesla has already done contracting to power the RAV4 EV, and Mercedes-Benz B-Class, Tesla will buy up companies (like maybe Subaru?) and re-power them with electric drivetrains and sell them under their current badges.

“If Tesla is making a gross profit margin of ~22-25%, then that certainly ought to include the salaries of all of the engineering staff, management staff, and sales staff.” It does not. Gross margin is essentially sales price minus manufacturing cost. It does not include R&D, sales, administrative, etc. That’s why they call it “gross”. A better term in Tesla’s case might be “manufacturing profit”. Sell enough cars and gross profit will cover your R&D, SG&A, etc. costs, leaving you with an “operating” profit. If operating profit covers interest, taxes and such you have a “net” profit. Tesla’s gross profit does not cover their operating expenses so they have operating (and net) losses. None of this has ANYTHING to do with capital investments into factories and such. A fast-growing company might make a billion dollar net profit but invest two billion in property and equipment. They must raise that extra billion by issuing stock or debt. Such a company is free cash flow (FCF) negative, but still profitable. The two billion capital expense DOES NOT appear on the income statement (it’s on the cash flow statement), so the income statement shows the one billion dollar profit. You seem to think… Read more »

Actually, it is even more complex than you would make it out to be Doggy.

For example, your numbers also neglect to account for the $9+ Billion in assets that Tesla has accumulated. Your numbers pretend that all the operating expenses and investment in infrastructure produced zero assets. That is false. Tesla’s Assets exceed Tesla’s liabilities by around a Billion dollars, but all you talked about was their liabilities, as if they had no assets to show for their money spent.

Another completely different way to look at it is that Tesla has -2.6 Billion in Retained Earnings, but has a 30+ Billion dollar market cap. So for every dollar lost in operations, Tesla has generated $10 dollars in equity value.

You use the same words as the investors I normally talk to, but you speak a different language. For example, ‘operating expenses’ do not produce ‘assets’. By definition.

Tesla’s assets exceeded liabilities on 3/31/16 by almost a billion dollars because they’d only lost 2.6b of the 3.6b shareholders invested. Shareholders since invested another 1.7b, giving Tesla cushion to lose more money.

Again, none of this means TSLA is a bad investment. That’s an entirely different issue.

You said below it’s common for growing companies to lose money. Actually, most highly successful growth companies were profitable as they grew. MSFT, INTC, CSCO, SBUX, MCD (decades ago), GOOG, EBAY, etc. It’s extremely unusual for a fast grower to to lose money for a decade+ and eventually succeed. AMZN is the only one that comes to mind, and they were pretty close to break even all those years.

I can think of many companies who grew fast, had multi-billion dollar market caps but who never made money and eventually collapsed. That doesn’t mean TSLA will do the same, but it does explain why so many smart people are short. They’re playing the odds.

“Even if Tesla suspended all investment into the Gigafactory, the Supercharger network, new stores, Fremont plant expansions, etc. tomorrow their income statement would STILL SHOW A LOSS.” What you are saying, is that if Tesla threw away all of their investments they have already made in their future, and stopped investing anything more into their future, that they would not have income to pay for everything they just threw in the garbage can. The answer to that is a big fat DUH!! Of course at this point they can’t take massive investments into their future profitability, and throw it all in the garbage and pretend they never spent that money. Now the proper question would be HAD TESLA NEVER invested money into improving the Model S, building the Model X, developing the Model 3 and other unannounced future models, developing wall chargers, opening new showrooms to handle X and 3 traffic, building out the supercharger network to handle future traffic, expanding Fremont, and building a Gigafactory, would their original 2012 line of Model S vehicles now be profitable? The answer is yes. Can a company invest heavily into their own future and massive high speed growth unseen in any DOW… Read more »

What he’s really saying is that he can’t make money selling compliance levels of hobbled little ***** cars like the SmartED and adding the complexity of a 2nd drive train for 10-15 miles AER across the rest of the lineup is not appealing enough to customers to pay the price difference. He’s right – doing the absolute minimum to meet emissions standards isn’t cost effective and could bankrupt his company. He’d rather sell out to a larger OEM than do what’s necessary to make EV’s work out for FIAT

Tesla is in no way a bubble company. It is catering to a market other companies don’t see or are unwilling / unable to provide for. Marchionne can only dream of the margin Tesla has on the model S.

Most people making reservations for Model 3 did know exactly what they were signing up for. In all the specs that mattered to them. A well build electric sedan with a range over 200 miles and a price around $35000. Many had been waiting for years until a company was able to offer it. Some from the time GM shredded the EV1, well before Tesla was founded.

Of course not everyone waiting took a reservation. Lots of people are waiting to see what GM, Nissan and Renault are going to offer (it is a global market). But expect Tesla to be moving a million cars a year by 2020 with a very healthy margin.

“A well build electric sedan with a range over 200 miles and a price around $35000”

You can replace that sentence with:

“A Tesla”

Tesla has a very strong brand, and people are very eager to buy one, even if a better, but less sexy, model from the competition would be a better choice. People follow their heart when buying a car.

Tesla’s position in the car world is comparable to the position that Apple has in the market for mobile devices.

Forget the factories and superchargers and IP, the brand is Tesla’s most valuable asset.

About a year ago:
“NHTSA convened a hearing July 2 on Chrysler’s handling of recalls. The company could face fines up to $700 million.”

So yeah if Tesla were run like Fiat/Chrysler then it would not be able to ever make a profit.
Same old story same old song and dance.

FCA can’t even replicate the success of the Toyota Corolla, let alone the Model 3.

The whole FCA operation will collapse like an old flan when Alfa finally gets moving and then falls flat on its face. Marchionne has some delusion of Alfa brand overturning Audi (!) and BMW (ahem), yet four of Alfa’s Giulia press cars broke down at the launch event a few weeks ago, one being hauled away on a flatbed.

Jeep and (Dodge) Ram trucks will be sold off to the highest bidder, and Mr. “I can’t make money on EVs” here will get his golden parachute and sip overpriced cappuccino in Milan.

Tesla will go on changing the world, same as they ever have. It won’t be easy or pretty but against all odds, they’re doing it.

But we should all wait until FCA releases the electric Pacifica mini wagon . It may be a showstopper if they price it right. It will be the only electric van available.

The Pacifica Hybrid (crappy name for the plug-in) is a wild card for sure.

I’m interested in one of these for my own family hauling needs, but the pricing range on the standard Pacifica is a bit disappointing when looking ahead to the plug-in version and hoping for strong sales.

It is a practically a given that the plug-in option (with 16 kWh battery) will be a step higher in pricing than the top-of-the-line petrol version…and there is a lot of “trade-up” in options on the petrol Pacifica.

Pacifica LX $28,595
Pacifica Limited $42,495

…we are likely looking at $45,000-$49,500 for the base plug-in in America.

That’s a lot for a van, and EV customers in the US are getting real used to the federal incentive making leases on 30k-ish EVs ridiculously cheap. A 50k van, even after the $7500 is taken out of the lease, will still be $650+/month

Well that would just be stupid if FCA takes the price too close to 50. Tesla S 60 is just a cappuccino a day higher in price…

/exactly

Price math may be easier than how many Pacifica hybrids they will HAVE to sell, with the trucks strategy. That could bode well for us, and be enhanced by the confusing “Hybrid” tagging. Knuck, knuck.

This vehicle is going to have ~16kwh of battery. It’ll be 2025 before Mercedes puts that in the S-Class.

Until Tesla actually proves it can make money, he might be right. Anyone can build electric cars if you throw enough money at them. Reaching net profitability is a much larger challenge.

it is, semms like Tesla has a lot of people behind them.

Serious question, Breezy:

Do you doubt that Tesla Motors would become cash-flow positive (what you’re calling “net profitable”) immediately, if they stopped spending money on future growth?

Well, that may be an oversimplified question. If they stopped right now they’d still have to pay off the loans they’ve already taken out to build at least part of the Gigafactory, and investments in production line equipment that they wouldn’t need if they stopped growing.

Anyway… hopefully you understand the question I’m trying to ask, even if I can’t phrase it both accurately and simply.

Breezy, I don’t believe you understand the relationship between net profits and growth companies, compared to net profits and well established companies.

High growth companies typically do not show net profits until they mature.

Old, established companies (hopefully) show net profits.

Are you implying that Tesla should for some reason meet a standard for showing profits that no other high growth company is held to? As if they were a well established company in the DOW 30?

Tesla IS making money on the Model S, which is their only product that has already been in full production long enough to start looking at assigning R&D sunk costs on a per unit basis.

“People should realize that there is nothing another company cannot replicate…”

No doubt there were executives at Eastman Kodak saying the very same thing in the early days of the digital camera revolution.

“I don’t know how to make that economic model work.”

Wow. Has there ever been a more clear indication that a company won’t survive a disruptive tech revolution?

Goodbye, Fiat-Chrysler.

I totally agree. Goodbye Chrysler.

BTW, I’ve owned
68 Dart
76 Volare
85 Aries
95, 2003 and 2016 Dodge Caravan

Thanks Sergio…

How do you tell a guy who loves building lawn mowers that he has to start making washing machines..he just loves cars with engines.. poor guy…

My lawnmower is electric.

My electric lawn mower is still my best dollar value for investments in reducing emissions and pollution.

Every hour of mowing my lawn with my old little stinker of a gas mower was putting out the equivalent of some pollutants as driving a typical car for 11 hours (according to the EPA).

Those little gas mowers just don’t burn gas very well, turning a much larger percent of the gas they burn into harmful pollutants than modern car engines do.

FCA revenues are about 20% over BMW’s, yet the FCA spending on R&D is only a little over half of what BMW is spending. Also FCA has gradually lost profits and was pretty much break even in 2015 while BMW is vastly profitable. Maybe not the best comparison but it’s interesting watching two companies of comparable size but with different strategies. FCA seems to be one of the dinosaurs in the car industry with a nonchalant attitude towards innovation, “we can do it too we just don’t feel like it because it’s just a bubble”. I really hope it ends up biting them in the ass.

Sergio non ha capito niente…

Sergio capisce solo il denaro.

This guy….lucky for us, regulations will force the end of the ICE because eventually there will be a point here lower MPG/CO2 per KM will no longer be technically possible with an ICE.

I think we’re already there if the EPA and other governmental agencies do real-world testing. I was behind a new Fusion EcoBoost the other day when he nailed the throttle. The amount of smoke and smell was astounding for a new vehicle.

The biggest problem is not making profit but to keep this temporal world sane, with goodwill.

The message here is that traditional auto manufacturers are used to operating at a much higher profit margin than Tesla or electric cars in general.

Marchionne can only dream of the margin Tesla has on the model S.

I think Sergio is overcompensating for the lack of a good EV program. He now finally realizes that the EV revolution is happening and is boasting that they can do it too.

But Fiat-Chrysler is far behind because they abandoned efforts and their compliance car was outsourced. they are desperately trying to play catch-up with the Pacifica PHEV . . . I wonder if it will be any good because it will be a first effort. I doubt it will be as good as the refined Voltec technology.

Chrysler never did make a car worth owning
Bye bye

What an ego: just because I cannot figure it out, it must mean no one else can either.

Why is he so concerned that Tesla won’t be able to make money?