Union Of Concerned Scientists Present Case For & Against Tesla

JUL 29 2018 BY VANJA KLJAIC 59

Either Tesla is doomed or it is guaranteed to succeed – both supported by valid arguments

The Union of Concerned Scientists is a collective which believes that vigorous analysis is the best way to understand the world’s pressing problems and develop effective solutions to them. That means, that, unlike some more keen about the headlines websites, they develop well researched & factually solid reports about some of the world’s most pressing problems. This week, they’ve tackled Tesla Motors.

Tesla is a company with an interesting future in front of them. They will either vanish as fast as they’ve entered the market, or be the world’s most premiere car maker down the line. Right now, the company is faced with some tough events that will most certainly shape up their future. Just a few weeks earlier, the carmaker hit the limit for the electric vehicle (EV) federal tax credit. This means that the full $7,500 tax credit their customers could count on, will from now on be available only to those who are delivered a Tesla before the end of 2018.

Following this year, the next phase of the tax credit curtail is due to hit Tesla in 2019, ultimately eliminated beginning January 2020. That puts the California based car maker at a big disadvantage and potentially, in front of a big problem.

Some of Tesla’s direct competitors such as Nissan and GM, are yet to hit the 200,000 vehicle limit, putting them ahead of Tesla in terms of vehicle pricing and availability. In turn, this means that Teslas are going to get even more expensive, especially compared to other EVs that still qualify for the tax credit. Naturally, this has spooked some Wall Street analysts, who are now worried whether there will be sufficient consumer demand and whether Tesla can actually increase their vehicle output to a level where the company is profitable.

For the Union of Concerned Scientists, this could go both ways. Their analysis covers two scenarios: one where the American car maker is doomed and another where it flourishes. Both come with some pretty strong arguments. In many ways, this is one of the most objective reading materials – supporting both sides – that we’ve seen on the internet for a while. They don’t predict anything but utilize hard cold facts to beef up their argument. Definitely worth a read!

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59 Comments on "Union Of Concerned Scientists Present Case For & Against Tesla"

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I will still buy my Tesla …

You got me, Vanja.
I thought i was going to read something new but the post from UCS is a mirror of the Tesla treads on here so nothing to learn.

Yep, not a whole lot of science in that article – reader’s digest version of an in-depth report. The debt/profit chart was worth looking at, even if it has been published before.
The article does conclude that Tesla will be fine, growing pains and all. Even though the article says there are supporting arguments each way, one way has more positive supporting arguments.

I am not sure why scientists would be concerned about the financial viability of Tesla? I expected a report on the benefits/disadvantages of electric propulsion, not financial analysis.

They’re best chance for slowing greenhouse emissions in the U.S. Transport is highest source of emissions since the grid is rapidly de-carbonizing. They’re a future player there too, between storage and PV production

Me too!

They have a map that does that already. Short version is, EVs win hands down

TSLA long here, following all of the negative press to make sure I’n not becoming a fanboi, but nothing even came close to convincing me to sell. The absolute worst case scenario is that Google, Apple or someone would buy the company, in which case I could potentially lose some money, but I’m ok with that. It’s been a fun ride so far, although I have to say Elon has made me nervous on a few occasions 🙂

I agree with you. Have a great day

Unless they start having serious problems I don’t see how the shareholders would approve a sale to anyone under the market value at that time.

If anything, Musk would rather take Tesla private like SpaceX if he could.

Too much dough needed for that, don’t see it happening.

I put it at about equal probability as Tesla agreeing to a buyout or going bankwupt. Slim to none on all accounts.

But I figured if we were going to talk flying horses, I might as well post what ultra low probability event Musk HAS actually talked about wanting to do. But you are correct, events would have to change drastically for any of these three things to happen. If things changed that radically, that any of them were possible, of the three options Musk would clearly choose finding investors to take it private.

I don’t see any of these things happening.

One day you will see Elon taking his hands completely off Tesla. That is, paradoxically, why he is so involved now. He wants to make Tesla a success so that it can run itself. You will see.

Musk’s last compensation negotiation was as usual, stock in lieu of salary, and lots of it. In exchange he has to meet dramatic growth and profit targets. He’s has never been someone to see value in being rich, but in having capital to invest in the next step in his plans. That could mean controlling interest in Tesla,or….who knows what’s on his mind?

Tesla is about 1 quarter away from running out of cash, if they don’t raise money soon they will have an existential crisis. If Tesla runs out of cash they will try and stretch out their payments to suppliers who will respond by demanding cash up front. At that point there are a couple of scenarios, 1) When Tesla’s valuation drops in half, Apple swoops in and buys them. Apple has a mountain of cash that they don’t know what to do with, they could buy Tesla and fund their growth. Tim Cook would provide the adult supervision that Elon Musk desperately needs. And finally an Apple purchase wouldn’t hurt the value of the Tesla brand name because both are premium brands. 2) Apple doesn’t buy them, Tesla goes into bankruptcy. A bankrupt Tesla has a number of potential buyers. Ford or Toyota are both lagging in EVs, buying Tesla would fix that. Both know how to fix Tesla’s production problems, they both undoubtedly have way more than enough spare production capacity. But there are culture problems with both, Ford has a terrible track record with luxury brands and they are an old line company that might have a hard… Read more »

Oh boy, you sure haven’t done your homework. How about, if Tesla needs more cash, they will just raise it (despite the fact that Elon said that they wouln’t do that), scenario 1 and 2 solved…

In worst case scenario, like Elon wouldn’t sell part of his SpaceX stake or simply borrowed $1 bil against it to save Tesla.

And by the way, so when Tesla makes 10k Model 3s a week and 2k Model S/Xs a week, will they still go bankrupt? Tell me please what happens after that?

No.

double no

There’s always a spike in negative drumbeat before the quarterly.

And the next 3-6 months are going to be even worse than normal, because they know they have to really fight to change the narrative away from Tesla having already successfully brought the Model 3 into full production now, and Tesla holding all the top 3 sales slots in the US last month.

Applying Elon time, the next 3-6 months is more like 18-24 right?

I would seriously doubt anyone would buy Tesla. Given it’s stock price it would be cheaper to build a factory, fill it with machinery in a better location, build a battery plant, charger network and you would still be a quarter of Tesla’s market value. So short of a bankruptcy fire sale – it’s not going to happen. The question with any purchase is what does Tesla offer? I would argue 90% of it’s value is its name not the product.

Here’s the thing about most (or even all) situations that are found in our plane of existence: Some have positive characteristics, others have negative, while still others may possess a combination of both. Sometimes, it is impossible to predict what characteristics (or combination thereof) will be attributed to which situation beforehand…I thought this report really summed that up well. The fact that 200,000 scientist put their weight behind this report has me pretty convinced.

It is a blog by one guy. Pretty sure 200,000 scientists didn’t sign a letter agreeing with everything in his blog.

Notice the word “I” used throughout the article. He’s using the label “UCS” to express his own subjective view.

I’m surprised that a group of scientists didn’t propose a “Schrödinger’s Tesla” solution: That the electric car maker will simultaneously flourish and quickly fail, depending on the observer’s viewpoint!

In fact, that seems to have an ironic (or at least bemusing) relevance to all the ridiculous claims from the Tesla Death Cultists, who are eternally determined to convince us all that Tesla is always just about to fail, sharply contrasted by the reality that Tesla stubbornly continues to flourish and grow at an ever-faster pace.

😆 😆 😆

in turn sharply contrasted by the reality that Tesla stubbornly continues to generate losses and burns cash at an ever-faster pace.

Does it make me a cultist, to believe that a company has to make a profit in order to survive sustainably?

Depends.
All they have to do is cut back on growth spending. It is well known that their cars have good gross margins. Would you rather they did that just to be profitable? Would you do that if you were the CEO?

This is the million dollar question. With no other products in the near term pipeline can they generate positive cash flow? Only Tesla knows the answer to that question. And can it be sustained for more than a quarter without doing creative accounting?

It never ceases to appall me that the anti-Tesla brigade continues to describe Tesla investing in future growth as “losses”. Yeah, it’s a “loss” just like investing in your 401(k) is a “loss”. 🙄

Here’s what Clean Technica’s Zachary Shahan had to say on the subject, in his highly useful exposé of the Tesla Death Cult’s FUD playbook (my terms, not his):

1. Tesla’s finances — investing vs. burning: As we’ve tried to explain meticulously in previous articles, there’s a difference between “burning cash” and investing cash into rapid, transformative growth. Tesla isn’t “burning cash” with nothing to show for it. It has gone from producing zero cars to an annualized production rate of approximately 300,000 in the course of a decade. Each quarter shows dramatically more production and deliveries than the quarter a year before. Last July, Tesla delivered 30 Model 3’s. This July, it may end up delivering 20,000 or so. Is that “burning cash” or is that ramping up production of a mass market car?

https://cleantechnica.com/2018/07/23/tesla-shorts-are-scared-exposed-desperate-memo-to-media-dont-be-duped/

“anti-Tesla brigade” “Tesla Death Cultists”

You don’t agree with them, I get that. But why do you think they are one single entity? People who express negative opinions about anything Tesla are different people coming from different angles. Just like the ones who have positive views. And vast majority of people are neither fanbois nor death cultists. The very same person will sometimes write what is favourable to Tesla and sometimes not. Why do you box people in with your labels?

Because all the “anti-Tesla death cultists” are all in it together to short TSLA stock and bring down the company in a coordinated attack. I mean it’s not possible that various people dislike the company for variety of reasons, you know? It’s all part of one big plot to bring down Elon and Tesla.
/sarcasm

Zachary Shahan, a TSLA long, and author of this recently published, horribly inaccurate “article”? https://cleantechnica.com/2018/07/14/bmw-i3-vs-chevy-bolt-vs-nissan-leaf-comparison-review/

He ultra-fanbois and states the i3 is best in his mind compared to a Leaf and Bolt (evidently because he simply made up a bunch of stuff in his mind) since it has a roomier back seat (WRONG, Bolt is more spacious), is faster (WRONG, Bolt has superior 0-60), and the Bolt’s regen won’t bring it to a complete stop (WRONG, it definitely does).
If you are getting your EV news from schmucks like Zach, I understand why you are the way you are.
To add to his “journalistic professionalism”, he deletes any comments he disagrees with. Lol, what a douchebag.

You didn’t bother going to the article and even looking at the pretty pictures, did you?

It clearly shows how Tesla losses are greatest during rampup, and definitely DO NOT keep going at an ever-faster pace. Instead they clearly showed how losses turn around as quickly as they started until Tesla is in the black when they bring a new car to market. Then the entire process repeats itself with the next car, with losses increasing and decreasing until Tesla is back in the black.

We are at the end of that cycle now in 2018.

There isn’t even anything strange about this. It is the natural spending/return on investment cycle that ALL car makers go through with EVERY new car they bring to market. It is just that Tesla is in the rare position of having this cycle be so transparent in their SEC numbers, while other car makers can hide it behind their other cars in production. With each car Tesla adds to their stable, the more they will become like that too over time.

Yes. It does. Otherwise you can take the example of Amazon and also look closely at what Tesla does and realize that they can grow for a long time without net profit

Actually, interestingly enough the answer to your question is:

A company can make 0 net profit and be sustainable for over 1000 years (even without raising capital) at same time, a company can be highly net profitable and go bankrupt the next day.

If you understand how both are possible, then you either ran a business or well versed in finance. If you can’t figure it out, well there is your homework, you have much to learn.

In any sort of argument we can usually be assured that one side or the other or both are making assumptions.
The view that Tesla will fall due to the eventual phase out of the tax credit is one such assumption.

I’m disappointed to see the linked article references the 24% cancellation rate for Model 3 reservations, without putting that into its proper context. That’s one of those “Figures don’t lie, but liars do figure” things.

Yes, there’s a 24% cancellation rate for the Model 3. And so what? That’s almost entirely unimportant. What is important is the net rate at which new orders are placed. If memory serves, the Model S had a 25% pre-order cancellation rate. Was that an indication of falling demand? Of course not! Demand for the Model S is greater today than it was then. And we can be fairly sure that demand for the Model 3 will also increase over time, despite the constant whining from the Tesla Death Cultists. They’ve been proven wrong every year — heck, every quarter — in claiming demand for Tesla’s cars is falling. I suppose they’ll continue their absurd whining about this every quarter, so long as it’s possible for them to short Tesla stock. 🙄

GO TESLA GO DESTROY DIRTY GAS GUZZLERS AND DIESELS LOL CONNECT THE DOTS ON CLEAN AIR WAKE UP FOLKS thanks co2.earth

As Clara Pellar said (Wendy’s ad circa 1984) , “Where’s the Beef?” All generalities on both pro and con and nothing substantial.

The Federal Tax Credit was (for Tesla) and is (for all the others) a temporary tool to make BEVs more attractive to both buyers and manufacturers. More important it was meant to help launch BEV/ZEVs in general. In the case of Tesla their models (S,X, 3) at full MSRP (with reduced or no rebate) are competitive with the ICE and hybrids of similarly equipped models from BMW, Audi, Porsche, MB. It is another story with Nissan, Toyota, VW, whose BEV/ZEVs are significantly more expensive the comparable ICE models.

Sooner than later, the other manufacturers will hit the limit of the Federal Tax Credit or the credit will be rescinded. It was meant to motivate and start the ball rolling. BEV/ZEVs would greatly benefit if Big Oil’s subsidies were to be re-evaluated. Ever wonder why the price of gas at the pump in the US is half the price of every other industrialized country in the world? Besides, cleaning and strengthening the electric grid benefits all of us.

IMO the main thing to be learned from the tax-credit phaseout is that, contrary to what some of the legacy automakers say, there is demand for EV’s, otherwise Tesla would not have sold as many as they had, they would not have 450,000 deposit’s down for a car that many of those people have never seen in person. In addition, even if the other automakers do get serious about EV’s, Tesla still has one of the largest and easiest to use charging networks(right now, Tesla is the only charging network that allows you to drive across the United States, in a reasonable amount of time.).

What’s more, not only Tesla, but almost every BEV model on the market right now fails to meet demand with production…

Side note:

It should be noted that this source is the BLOG from Union of Concerned Scientists, and not a STUDY from Union of Concerned Scientists. So this is not the same peer-reviewed type of study that most people think of when they think of the Union of Concerned Scientists. It is the well-sourced opinion piece of one person that UCS, and BOTH sides of the arguments he presented should be taken in that context, and not with the same weight as their exhaustive peer-reviewed studies UCS is famous for.

If you disagree with one or more points made on either side of the arguments he presented, the point of his blog wasn’t really to scientifically review any of the arguments he sourced and to judge whether each point is valid or not. It was simply to present those arguments and to juxtapose those opposing viewpoints.

Personally, I tend to prefer UCS’s more scientific approach in their peer-reviewed studies of actually weighing the validity, instead of just juxtaposing different viewpoints, but this blog is what it is.

What has it got to do with scientists anyway? Pathetic day dreaming scientists?

When is the Petroleum subsidy phaseout???????

In reality it’s going to increase. The Trump administration wants to roll back CAFE fuel efficiency requirement and in effect giving the oil industry a boost at the expense of the consumer and the earth’s health. We’re all losers regardless of your political leaning – except of course Trump and his cronies, and those who pay him.

Trump cronies also live on planet earth so they will also suffer the consequences of global warming. In cape coral florida there is a green algae outbreak that is disgusting foul smelling and bad for business but cape coral florida consistently votes Republican, the same party that refuses to regulate pollution lol
CONNECT THE DOTS ON CLEAN AIR WAKE UP FOLKS thanks co2.earth

Both of these scenarios are extremely unlikely. The most likely outcome is that Tesla remains a player in a crowded, competitive EV market indefinitely.

Why? There are no competitive ev’s now.

Hopefully with a new, more polished CEO in the not too distant future.

The loss of the incentive will end up making little or no difference to sales, and then the press will stop talking about it. Taking peoples money and giving it back to them if they buy what you want them to buy is the essence of government interference in the economy, and the economy will do quite well with big daddy government taking their hands off, thank you.

I realize it is normal on this site to view government as all knowing and all seeing, but government guiding economics is like convicted rapists running a women’s shelter. Good bye to the incentive. Good riddance.

When has the gov not run the economy? Directly or indirectly. if you don’t want the tax credit just don’t file for it. It’s easy, just don’t tell them you bought an ev.

It really is too bad that many people on this site flunked basic math. I’ll give it a shot, but it is hard to penetrate the granite between your ears.

TAXES – That is something the government TAKES FROM YOU BY FORCE.
SUBSIDIES – That is something government gives you from the money they take from you, AGAIN BY FORCE, after they take their cut (as in pay government workers, pay off pork projects to influence groups, etc).
NET TO YOU – Someone who takes your money at gunpoint and gives you back some of it to make you feel better is not doing you any favors. Refusing to take it is even more stupid, since its your own money.

Of course this is really a waste of time, since you are too stupid to have a good job and pay much taxes, so in your case it really might be a net benefit to you.

Ok, but I wouldn’t hold my breath regarding too much tax relief. I don’t expect much from our presidents, I just don’t want to elect someone who will make matters worse. But I take advantage of any solar and ev credits from income taxes I can muster. I’d rather spend it on a more expensive electric car than having it just officially stolen. And, it doesn’t hurt my neighbor, since they aren’t paying me for a benefit. There is just a smaller amount Stolen from me, those years I purchase an EV, or do something solar-wise. The fact that I was in Syracuse, NY at lunch time 3 days ago at a 200 volt- 15 ampere ChargePoint and had the WHOPPING 3 kw I was taking from the grid cause the ONSTAR system to ‘Sustainably Throttle’ my ELR down to 1.5 kw on a sunny day means that currently, there is hardly too much solar production in my locale. If there was, there’d be no necessity for my CADDY BROWNOUT. (First time while charging I’ve even been ‘throttled’.) That said, I think, diplomatically, Trump will be considered a success, even by the Europeans…. They seem to understand he talks differently… Read more »

Just like the $14k incentive that was recently axed in Ontario will have little to no difference in sales?

The tax credit is for the US only. There’s the entire rest of the world which hasn’t been considered. Also, what hasn’t been considered is Tesla’s other areas of business e.g. semi, solar roof, power pack and powerwall. There’s also the Roadster gen 2 (I don’t think anyone thinking of spending $200k on a car is gonna be influenced much by a $7.5k “discount”).

Yeah to me that is both a personal disappointment and I believe a strategic error on Tesla’s part. I could barely afford a stripped Roadster – but i’ll never be able to get the new one. If Musk’s vision is to provide all types of vehicles to the “masses”, he’s not going to do it by making the most expensive car he possibly can.

Given Tesla’s current money problems, I don’t see how the company can stay afloat when the competition heats up in the EV market. It’s bad enough the competition will have a tax credit advantage, they’ll also be able to sell EV’s at a loss for a few years. Will that mean a price cut for the Model 3? Will Tesla be able to make money on the base model, if they ever make one? I’d also be concerned about reliability, possible recalls, availability of service and parts, etc.