Have You Ever Wondered Why Tesla’s Not Flat Broke?

MAR 24 2018 BY STEVEN LOVEDAY 80

It seems there’s a daily battle about whether or not Tesla will make it over the long haul. Here’s an honest look at how the financial part works.

On paper, Tesla has struggled to report a profit. Many people assume the automaker is on the verge of bankruptcy and it’s only a matter of time before things turn upside down. Though the automaker profits from its vehicles and services, current operating expenses far exceed such profits.

RELATED: TESLA POSTS Q4 EARNINGS, RECORD REVENUE ON RECORD DELIVERIES, LOSSES CONTINUE

Tesla GigafactoryOn the other side of the argument, Tesla is essentially a new company, especially when comparing it to legacy automakers. While quarterly reports show a net loss, those who side with the Silicon Valley automaker would assert that this is because all money earned (and then some) must be invested in future products.

The simple truth of it all is … CASH is KING, but you’ll learn all about that in the video.

We all know that most major automakers are moving slowly with electric vehicles due in part to the huge costs associated. Some CEOs have even gone on the record saying that the company will lose (or has lost) money selling EVs. Why manufacture electric vehicles when you can profit from ICE cars?

Tesla sells only EVs. So, if these legacy groups don’t want to build electric cars because it’s expensive and they’ll lose money, think about the costs associated with being an automaker that has only ever made battery-electric cars. It may be years before Tesla can recoup these exorbitant expenses (if ever, depending on who you talk to).

READ ALSO: TESLA STOCK SURPASSES $300 FOR FIRST TIME EVER, MARKET CAP JUMPS PAST GENERAL MOTORS

Nonetheless, a profit is a profit. You can only borrow so much before you need to show success via your own merits. Will Tesla eventually fold? Will the cash bucket stop giving? If so, will another major automaker or related company scoop it up?

What do you think?

Hopefully, this informative video gives you a better perspective of the situation as a whole, and perhaps you’ll learn something new.

Keep the conversation going on our Forum. Start a new thread about this article and make your point heard.

Hat tip to SparkEV!

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80 Comments on "Have You Ever Wondered Why Tesla’s Not Flat Broke?"

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The Musk show

They are building a company with a battery plant, service centers and super chargers, that all takes money but increases asset value.

This is the way of the market. Usually, the irrational risk taking requires of a leading edge company that creates a new segment is at odds with the kind of practical business sense required for a healthy, market leading company once that segment is established. If history is any guide, such companies tend to not get bought out, but imitated to oblivion. Apple is the classic company that never enters a new category first. Whether it is MP3 players or blackberries or tablets, they took ideas that were coarsely executed and they perfected the delivery. None of the mp3 or smartphone makers that predated Apple got bought out. They invariably collapsed due to accumulating bad decisions. In Blackberry’s case, they were so passionate about features (keyboards, clickwheels, etc) and had customers equally passionate about them (they were called crack-berries) that they failed to see the bigger picture – the softer edges of what the segment was actually about. You can already see the outlines of Tesla’s similar blind spots – a belief that everything needs to be disrupted (from grilles to dashboards to rear doors) and an inability to respond to feedback (no car for you if you complain) The… Read more »

+++👏👏👏🖒. Of when GM, Nissan or Porsche decides to take out loans and cash from their companies to build EV models in thier lineups that are better then Tesla, practical and afforable

@dan said: “Apple is the classic company that never enters a new category first. Whether it is MP3 players or blackberries or tablets, they took ideas that were coarsely executed and they perfected the delivery.” ——————— I would argue that Tesla is exactly like an early day Apple… taking a poorly executed prior concept and through inoviation and better execution re-launching it to create a different and preferred user experience. Tesla did not invent the electric car. The electric car has be in-play as a consumer product even before ICE cars but historically EV initiatives have not gained critical mass adoption including General Motors’ EV1. It’s taken the Apple of EVs (that would be Tesla) to re-imagine and revolutionize the EV industry. And those that incorrectly claim that Tesla is in a category with no competition need only look at the INSIDEEVs SocreCard. Like Apple for phones/computers the traditional car makers have been shaken by Tesla but as same as early day Apple the traditionals are greatly weighted down by legacy constructs. Also, Tesla is primarily in the energy business… Tesla EVs are just one component of that… that’s a concept that very few understand but over next 10 years… Read more »

I liken it to 1984 Apple where they took Xerox PARC ideas to turn into commercial product. Despite being expensive, they were the pioneers. Had they stuck to Apple 2 line of products to compete against PeeSee , Apple would not exist today to make iPhones, etc.

Meanwhile, where’s Xerox today? In other words, where will GM and others be tomorrow?

Tesla is forcing the rest of the automakers to adopt EV’s. The more quickly Tesla can grow as a company, the more quickly the rest of the automakers will have to respond. It is literally the difference between total EV adoption happening in by 2040, or without Tesla, maybe by 2060. Without TESLA the rest of the automakers have no incentive to do anything other than sell gas guzzling SUV’s.

Does civilization have an extra two decades to waste burning fossil fuels. I know my lungs and heart do not have an extra two decades to wait for EV’s to replace ICE entirely.

The dotcom-era had many, many companies that were first and where a high burn-rate seemed positive at the time. Losses were no problem, they showed that you invested and grew.

For every Apple there are hundreds of Webvan. Tesla might make it, or they might not.

I certainly won’t proclaim that I know for sure if Tesla’s idea of disrupting the norm of how we interact and drive our cars will succeed but it seems like your example of assigning Tesla’s approach to Blackberry failing to see that people would eventually prefer Apple’s touchscreen is backwards. It seems that the more appropriate analogy would be that the traditional OEMs that continue to insist that everyone wants and will always want physical traditional interfaces like buttons and knobs are the keyboard buttons and clickwheels of the Blackberry. Tesla is attempting to challenge this assumption just like Apple did with offering a self contained device that did everything through touch. I remember when the first iphones came out there was a lot of ballyhoo in the media that this was a stupid idea. I also knew quite a few Blackberry users who swore the same and that they would never own such a stupid trendy device. Now I know smartphones aren’t cars but combining one centralized interface for information combined with eventual decent at least level 3 autonomous driving might be the combination that convinces the “crackberry” auto-consumer that the centralized interface is more natural. Or they could… Read more »

The primary use of a smartphone is as a screen for content. Apple was able to get the pulse of what the mature industry is about.

The primary use of a car will never be as a screen for content. Tesla is not alone in making this mistake. The Faraday Futures and Nios of China have gone further along that branch assuming that the car can be reinvented as an extension of a smartphone. It just is not the case! The opposite is what is happening. The car is becoming the fulfillment device for an Uber or Lyft transaction – where the screen for interaction ends up being your phone.

This is just one such case where Tesla is too blinded by its own ideas to listen to what the tea leaves are saying. Like I said before, it takes such a socially incompetent, stubborn personality to create a new segment. That trait is the last thing you’d want in a market leader.

“the traditional OEMs that continue to insist that everyone wants and will always want physical traditional interfaces like buttons and knobs are the keyboard buttons and clickwheels of the Blackberry”

Even traditional OEM’s have been working on advanced interfaces that replace traditional buttons and knobs of decades past. Whether it is voice controls, or roller balls, or multi-function pointers, all the luxury car makers have been putting out new interfaces to replace the traditional button and knob. The touch screen is just the latest evolution of change.

The funny thing is that if you go back a decade or two and read reviews of luxury cars, one of the common complaints repeated endlessly in car reviews was the confusion from all the buttons and knobs that had grown to crowd the dashes of cars of that era.

Yep like when honda had no buttons and knobs abd people bs about so they went back to knobs and buttons on thier interface on thier 2018 Honda Accord and that MY lineup

I think this comment is over-the-top enough, to write a response days later:

“.. convinces the “crackberry” auto-consumer that the centralized interface is more natural. Or they could fail.”

Ergonomics have a really simple definition, that usually takes shape around a certain objective. Like, say, DRIVING.

Do you have to use your eyes to control a touch-screen? Does that functionally support your objective?

It is so simple, yet people still try to frame the use of tactile controls as something “old”.

Great analogy Dan….except Tesla is not Blackberry, a one hit wonder. Tesla is Apple. Tesla wasn’t first to market. There were a number of others before them; Corbin, Xebra , Zen, Tango, Aptera, et al. Apple improved on the original iPod and added complementary products creating great synergy and Tesla has done the same. Had Tesla not moved on from the roadster they would be vulnerable but they and their products evolved adding OTA updates, ADAS, a charging network years ahead of competitors, multiple price points. To improve margins and control their own destiny they added battery manufacturing . From there it was a short hop to adding grid storage and solar panel production. Like Apple they’ve created their own ecoverse of symbiotic products. Naysayers and nervous Nellies have been predicting Tesla’s imminent demise for about 15 years now. Such prognostications have less credence than an Elon production schedule. Tesla’s vision is clearer now than before the MX fiasco. They missed the mark by years and there is little reason to expect that they will not be given that much leeway with the M3. If they can sustain production of 2,500 M3s per week by the end of CY 2018… Read more »

Yup. The “Blackberry” of the EV revolution is Toyota, with the Prius. Just like Blackberry when the iPhone came along, Toyota isn’t taking the challenge of the new upstart entering the market seriously, and they have not responded with a strong competitor to Tesla. Instead, Toyota keeps putting out press releases saying that people don’t want battery electric vehicles, that fuel cell (or “fool cell”) cars are the future of automobiling… or maybe it’s the new solid state battery tech which Toyota claims, as if their attempt at solid state batteries has any better chance of being commercialized than anybody else.

Now, that doesn’t necessarily mean that Toyota will, like Blackberry, shrink down to a pale shadow of its former glory, serving a niche market. Perhaps Toyota will eventually stop swimming against the stream and — to mix metaphors — jump on the EV bandwagon. But if I were making bets on which of the current leading automobile makers will survive the next 15 years, as the EV revolution moves forward and makes most gasmobiles obsolete, Toyota wouldn’t be one of the ones I’d bet on.

It took nearly 2 decades before Apple posted a single loss. And that was for 2 quarters and never since. Apple is all about process – design thinking is Steve Jobs’ greates contribution and it is not a product. Toyota is the only auto company that is known more for process than product. There have been books written about TPS.

So, you’ve got Apple, Toyota, and Tesla all backwards!

It’s all about perception. If Tesla (really Musk) can make most investors believe that everything will be fine soon, they can keep raising funds to survive. Based on the stock price’s movement, and at least one recent action by Tesla to suppress a negative story here, I’d guess that they’re worried about keeping the positive spin going.

The Model 3 is their make-or-break product, and its launch has been far from smooth. I’d estimate they have until the summer to get production in order, or there will be blood in the streets.

One thing’s for sure, if they fail it’ll be a quick domino effect. Once investors get negative on a speculative stock, everyone rushes to get out fast.

I’ve read if Tesla doesn’t get to the 5000 Model 3 units per week soon they’ll have to borrow again to keep going. I’d be shocked if they found borrowing difficult but it will be expensive (at a high interest rate) as Tesla begins to look like a riskier long term proposition. With global auto producers investing billions in electrics Tesla really better get going very, very soon with volume production.

“It’s all about perception. If Tesla (really Musk) can make most investors believe that everything will be fine soon, they can keep raising funds”

Not at all true. The way Tesla continues to draw investment is in the cold hard numbers of revenue growth and sales growth. It isn’t perception, it is proven year after year consistent and well documented sales unit number and revenue growth. And Tesla has plenty of both, even despite delays in Model 3 ramp-up.

“The Model 3 is their make-or-break product”.

Meh. Not really. A massive success will certainly make their life much easier. But even if it were to do no better than “just” be the best selling EV in the United States by a clear margin like it is today, the Model Y can easily step in and pick up any slack.

We are already past the point were the Model 3 could have been a flop. It wasn’t. It is now simply how BIG the success will be for the Model 3.

CCIE said:

“It’s all about perception. If Tesla (really Musk) can make most investors believe that everything will be fine soon, they can keep raising funds to survive…”

That is exactly the sort of short-term thinking which has lead to the failure of so many businesses since the 1980s, including failure of businesses which had been sound for decades, but abandoned sound business practices in favor of chasing short-term profits.

It’s also exactly the sort of short-term thinking uses by stock day traders and short-sellers.

Thank goodness Tesla remains committed to investing long-term in its future growth, refusing to squander its growing revenue by paying dividends, and continues to ignore the constant FUD from Tesla haters like CCIE!

If and when Tesla starts following the very bad “advice” given by Tesla bashers who are only interested in short-term profits, even at the expense of ruining the company — in other words, blood-sucking parasites — that is when we should be worried about the future of the company!

Go Tesla!

Their cash burn rate is really high and they have to keep going back for more capital raises. I don’t necessarily think that Tesla is going bankrupt, but if their access to the capital markets dried up there’s no denying that they’d be in a tough way.

Personally if I were Elon Musk this would keep me up at night.

@ASAK said: “Their cash burn rate is really high and they have to keep going back for more capital raises… Personally if I were Elon Musk this would keep me up at night.“
————-

Correct.

Same as did Amazon.

I’m sure Jeff Bezos laid awake some nights in moments of self doubt wondering if the many financial analyst pundits predicting Amazon’s demise were correct.

While established and profitable Walmart was dabbling in the online retail space Amazon was full-bore investment spending at a great cash burn rate to re-invent the online retail user experience.

Walmart did not seriously address online retailing because it was held back by its legacy constructs… they were at that time primarily focused on how cheap can they deliver a consumer product (which is why Walmart exited their original “made in America” campaign and instead became a China Inc. retail channel) so they could increase their short-term profits to continue maintaining stock dividend payouts while building out additional traditional box retail outlets.

Today Amazon has a market cap nearly 3X of Walmart.

Tesla has a lot more direct competition than Amazon did, IMO.

“if their access to the capital markets dried up”

That is a big if. Tesla’s last bond offer was over-subscribed 20 to 1, and was issued above initial offer, and it was oversold beyond the original number of bonds offered.

That means:

1) They sold more than they originally offered to sell due to high demand.
2) They sold at higher price than they originally offered due to high demand.
3) Even with selling more at a higher price, Tesla still had 20 more buyers waiting behind each actual buyer if any buyer decided to not to purchase.

This is also despite taking equity off the table compared with prior bond issues that were convertible to equity, and limiting sales exclusively to only institutional investors such as banks and investment companies. All the available evidence points against any sort of drying going on.

Things can change pretty quickly. Look at Lehman brothers. It had a high credit rating and then abruptly went bankrupt.

Lehman went under because they broke the law and done things that would have been illegal prior to de-regulation that they should have known better not to do. The core problem is that Lehman borrowed against their CDO’s at a 30:1 ratio in order to bet in the stock market. (illegal prior to de-regulation). Massive mistake number 1. Then the elaborate traunching scheme Lehman used for creating those CDO’s was exposed to be based upon liar ratings that Lehman knowingly bought from intentionally blind ratings companies who created bogus ratings based upon the presumption that housing values would never go down in value. Massive mistake number 2. Making it worse, Lehman and the other banks had stopped doing their due diligence before handing out billions of dollars of their money to home buyers without reviewing borrower’s financial documentation collected by brokers. Many of these brokers had passed these docs on without review, and many times created themselves false or incomplete financial docs that understated the borrowing risk, and often overstated home appraisal values. Massive mistake #3. Finally, when these CDO’s were exposed as fraudulent, those assets they leveraged effectively had zero value in the market at that time, because nobody… Read more »

Also, you need to take into account that we’re in a very distorted investment environment right now due to years of easy money. There’s rampant speculation as all the money sloshing around tries to find investments. Tesla isn’t even the worst of it–at the very least it’s a tangible company with products that exist–we have cryptocurrencies magically created out of thin air that go on to be worth hundreds or thousands of dollars.

A day of reckoning is coming on all this stuff. When that day comes, I wouldn’t want to be a company burning tons and tons of cash and reliant on the market for continued operation.

Actually, the recent tax law changes nearly guarantee that there will be even more money sloshing around looking for somewhere, anywhere to be invested. The tax law changes are absolutely going to lead to another boom in stock buy-backs and more public companies going private. There will be more slosh. Tesla actually has a very easy exit to needing additional credit if years from now there is another credit crunch. They will have the Model 3 roll-out under their belt, and likely Y, roadster, and Semi, since we are entering a period of additional cash flooding into investments because of the tax code changes. By the time this upcoming bubble collapses Tesla will be in a very good position to either no longer even need further investment, or in a position where they can simply scale back massively on new products and simply drop back to being a typical car company. With modest cosmetic updates to their existing cars that they label as “New” models as they essentially continue to sell their already-developed suit of products. Since any market-wide movement would impact all companies, they would be in the same boat as every other car maker. We saw this happen… Read more »

What you are not mentioning but I’m sure you know is that that very same bond is trading at $91 today. Meaning people are so desperate to get rid of it that they are willing to sell $100 for $91. Moody’s has already downgraded it once to a terrible B3 rating and are expected to downrate it again. How will that affect the next bond issue, if there is one? Not good, that’s how.

Someone out there — What you are seeing is due to 2 things: 1) The entire fixed bond market has dropped as a result of increasing inflation. This is impacting EVERY fixed non-convertible bond. Inflation will ALWAYS cut bond values, and the Fed Bank has signaled 3 or 4 increases likely this year. This is simply a fact of life. Inflation goes up, your fixed bonds go down in value. Let me know if you don’t understand how this works, and need it explained to you. 2) The massive demand for Tesla bonds that I documented pushed the price up over what Tesla offered it at initially. Yes, this massive demand absolutely distorted the price upwards. The impact of this on the next round is actually very clear. Tesla will have to offer a higher interest rate to match the rising inflation rate, just like every single company offering bonds in 2018. Also, bidders will likely not bid up the price as much in the next round compared with the initial pricing (if they are smart). Will this stop Tesla from being able to sell bonds? Heck no. You would be silly to make any claim like that. You aren’t… Read more »

Tesla is very near that point of no return — get past it and they will survive…..

Last year they sold over 100k cars, this year — if they can get the Model 3 ramp up they will likely sell between 200-300k cars. 500k in 2019 is not out of the question if they can get Plant #2 up and running. With the intro of the Y in 2020 — who knows….

Remember, BMW only sells about 2 million cars / year. By next year, Tesla may be 25% there. Again – no sure thing, but if they can get this model 3 ramp going better (and signs from this week seem to indicate they may be getting there as they have sent out numerous invitations and registered a lot of new VINs) their market advantage may be unstoppable.

Based on their production performance so far, probably due to sheer incompetence, they’d be lucky to get past 50K Tesla 3 this year. They made only bit over 5K Tesla 3 in past 8 months.

BUT (and a big but), there’s no competition to Tesla at the moment, especially with hordes of free charging Bolt, i3, and just revealed awful charging Leaf. In effect, there’s only one viable EV for the mass market, and that’s Tesla. Investors are probably well aware of this fact, and why stream of cash will be available for the foreseeable future.

Another Euro point of view
There is no question whether Tesla will or will not need a new funding round in 2018, it is rather how much and when. Now I am not sure Elon is good at leading a car manufacturing company but he is sure good at raising funds. Therefor I expect no problems for Tesla to raise new funds unless of course Model 3 ramp up would prove really bad in Q2 & macro would play dirty tricks such as a full scale trade war. So 2018 should hopefully be about OK with a successful large equity raise. As long as Tesla can keep alive the narrative of highly profitable gross margins and losses only due to rapid growth then it will be OK. Anyway if Tesla do go belly up I would not be surprised to see some sort of Sarbanes & Oxley act putting some order in US financial filings as IMO those are so flexible they make any kind of cover up possible (in continental Europe the use of a standartized chart of accounts and publication of accounts based on it would make such narrative very difficult if not impossible, part of losses due by operations and debt servicing… Read more »

@Another-Euro-point-of-view said: “Finally, as we currently see with GM Bolt dorky body style & new Leaf fast charging issues, Tesla could fare well for still some time, not because it is so good (far from it) but because of other car makers questionable choices.”
—————

Lol… @Another-Euro-point-of-view came dangerously close to paying Tesla a complement.

Like telling a girl she is the most beautiful girl in the room because the other girls are more ugly than her.

Another Euro point of view

🙂

“Tesla do go belly up”

Never going to happen. If Tesla really butcher things up, though I can’t see how much more incompetence is in store than what we see already, private equity firms will be eager to swoop in. Investors are another matter if that happens, but Tesla itself is never going belly up.

Another Euro point of view

I sort of agree with that, brand is too valuable by now. However what we could see is stock price taking at least a 50% hit before those investment funds would decide to give support & we could see a Tesla completely “Applelized” (production in China instead of Cal. & that “vertical integration” nonsense (gigafactory etc.) disposed of & supercharger network sold). If those measures or at least part of it are taken we could see Tesla regularly post profits.

I doubt they’d build in China. It seems that cars are too large/expensive to ship to make it worthwhile to fully offshore.

Producing in Mexico might be more realistic, however.

I don’t agree with your statement that cars are too large/heavy to transport from China. I haven’t wandered around a car-lot recently, but I think a lot of companies have produced ICEs and shipped them from Germany (VW, BMW, Mercedes), Japan (Toyota, Nissan, Honda, Mazda), Korea (GM, Kia, Hyundai), and Sweden (Volvo & Saab (RIP)).
Tariffs would seem to be the big unknown under the current POTUS.

Debt is now $24 BILLION and growing…Investors don’t swoop in and BUY DEBT…they swoop in at Bankruptcy and get thing for pennies on the dollar

Yes, they have $24b in debt, but they also have $29b in assets. And that excludes non-tangible assets, such as the value of the Tesla brand name, which advertising research firms WPP and Millward Brown value at around another $5b.

This is compared to GM when they entered bankruptcy who had assets of $82.3 billion, and liabilities of $172.8 billion.

Talking about liabilities without also talking about assets is like talking about buying a house, and only talking about how much the current mortgage balance is. And never talking about the appraisal.

“There is no question whether Tesla will or will not need a new funding round in 2018, it is rather how much and when.”

We actually know the answer to that. Tesla is planning on getting funding by selling their car leases as investments to institutional investors. The timing and volume will be based on when they have blocks of car leases to sell to investors, and it will be a regular and normal event that they will use to fuel their ongoing growth.

This is really nothing new, all the car makers monetize their leases in one way or another.

Another Euro point of view

Could be & I understood Tesla did exactly that in January for approx. $500mio. However I am not sure Tesla can use this source of funds for the kind of cash Tesla needs (some billions $).

“Tesla is planning on getting funding by selling their car leases as investments to institutional investors.”

This doesn’t produce any cash. Tesla spends cash to build lease cars, but gets that cash back from their warehouse lender the day the lease is signed. When they later securitize those leases, the cash that comes in from the institutional investors goes to pay down the warehouse line. Securitzing is not a meaningful source of cash to Tesla.

“….it will be a regular and normal event that they will use to fuel their ongoing growth.”

Regular event, yes. Cash to fund growth, no.

Doggy — It frees up cash that Tesla would otherwise have to use to fund those leases themselves, since Tesla doesn’t have a financial arm spin-off. So yes it very much provides Tesla with the cash liquidity they need.

This is a really good video. Factually accurate but with good visuals that keep it moving. I strongly recommend anyone who has ever commented on it wondered about Tesla finances to watch it.

I think it said they raised $4+ billion from issuing new shares. It’s actually 8 or 9 billion. But he may not have counted convertible debt, which is understandable.

Again, watch this and you’ll understand more than 98% of the commenters ( including many who think they understand Tesla’s finances).

“I think it said they raised $4+ billion from issuing new shares. It’s actually 8 or 9 billion. But he may not have counted convertible debt, which is understandable.”

Yes, I believe you are correct, the $4+ billion does not count convertible bonds. Those are required to be recorded on Tesla’s balance sheet as liabilities unless/until the bondholder chooses to convert to equity.

You are also correct that the vast majority of those bonds will likely be converted to equity. If that number ends up being $4-5B, that could drop Tesla’s liabilities to under $20 Billion if they were converted today. While Tesla’s assets would stay at roughly $27 Billion.

Since converting the bonds into equity reduces their liabilities and does not cost them any cash, Tesla’s current balance sheet is a bit overly negative vs the likely outcome when the bonds are converted.

The extra $4b or so I’m talking about is convertible bonds which ALREADY converted to shares. I don’t think he counted those.

Oops. About half of that extra 4+ billion is converts that already converted. The rest is cash raised by SCTY by issuing shares, which Tesla later acquired by issuing their shares.

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

Another Euro point of view

Dear Mr. G

Thank you for this valuable input.

Truly yours,

AEPOV

Was passed by an the worst smelling, smoke emitting diesel car today. Looked closer and it said VW. Guess they didn’t buy back all of them.

Go Tesla

“Some CEOs have even gone on the record saying that the company will lose (or has lost) money selling EVs…Tesla sells only EVs. So, if these legacy groups don’t want to build electric cars because it’s expensive and they’ll lose money…” Tesla solved that problem back way back in 2006!!!! We actually know what Tesla does different than those CEO’s who claim losses. Tesla was even nice enough to let the whole world know exactly what their secret plan was to build EV’s with high profit margins: https://www.tesla.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me “Almost any new technology initially has high unit cost before it can be optimized and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model. ” The real question are this: 1) Why have ICE car companies completely ignored this proven solution that has led to over a quarter of a million EV’s built with a profit margin in the low 20%, and instead still built EV’s with little or no profit?… Read more »

Answer to your questions is that the established car makers don’t want to cannibalize their profitable high performance luxury car sales by introducing a competing product that will cost billions to develop and produce.

So the automakers are instead building low-end cars and using the federal tax credit to offset the cost difference and defray the development cost of EVs while still selling their high performance luxury cars.

4:05 sec is key to understanding why everybody keeps explaining to the trolls that Tesla’s losses are due to them investing into their future, which will then turn profits once those future products are sold.

You can follow the money and see how $4.4 billion dollars in investors put into Tesla went straight into investing into their own future and building more products when the investment matures.

Another Euro point of view
That’s the narrative. The problem is that, part from Elon Musk & Deepak and an handful of other people, no one knows how exactly the funds raised are used. the US financial filings are simply not standardized enough to allow such an in depth financial analysis, neither the US accounting rules are. This state of affairs is actually very convenient to produce financial bubbles, because, a bit like the bible or the Qran, if ten people read those 10k filings there will be 10 different conclusions. Very lucrative for the “smart money” who can day trade those stocks which price go allover the place on as no one exactly knows exactly on what financial shape is the underlying company . About Tesla, I am convinced that the stock will at some point be down at least 40%, I do not think that the company will go bankrupt but there will be a thorough restructuring. I see that coming in 2019. I mean it is not only the cash burn, it is for example also the purchase commitments with the providers. Tesla was supposed to produce about 250k Model 3 this year. They will be lucky if they produce 100k. You… Read more »

“That’s the narrative.”

No, those are the facts. Cold hard facts in SEC reports to be exact. Your inability to read American SEC filings doesn’t change that reality. Nor does your disbelief in the specificity of where money is going in the SEC reports mean money going into investment isn’t going into investment.

If you have proof that the money Tesla reported they spent on growth in their SEC reports (under penalty of law) actually DID NOT go towards growing the company, then post it. Stop the FUD.

Another Euro point of view

Come on…SEC never does a thing until after disaster has struck. We saw it with Enron, then with the subprime crisis, then with the Madoff ponzi. Forget about SEC. As regards investors protection there is no strict rule of law in the US, a bit of the wild west, fun to watch but then it shatters EU later on. This side of the pond is no better but it is rather with public money, companies are held on a short leach.

LOL!! So your evidence that Tesla is falsifying their SEC reports in violation of the law is: “Come on… Forget about SEC”??

Thanks, I needed a good laugh!! Thanks for disqualifying yourself from rational investment analysis. If you don’t believe anything at all in any SEC report for any company, I would suggest you invest in something more appropriate for you, like this type of accounts:

https://www.valuepenguin.com/banking/best-savings-accounts-for-kids

Do you really think investments magically stop? The model S is do for a refresh. Tesla is running out of space a Fremont. More Superchargers need to be built., etc… Building cars is just expensive.

No, investment never stops. But the ratio of investment into new products vs. revenue from existing products certainly gets better the more products a company can put into production. Until then every single growth company requires investment dollars to fund growth.

That is where Tesla is right now. They have few products in production and a larger number of products in development. When they flip that ratio they no longer have to use investment dollars to fund investment into expansion.

“4:05 sec is key to understanding why everybody keeps explaining to the trolls that Tesla’s losses are due to them investing into their future,”

How can you not get this? The video is very clear.

The $4.4 billion that Tesla raised in 2017 and invested into factories, equipment and such IS NOT COUNTED AS PART OF THEIR LOSS. Their 2017 loss would have been the same if they’d raised zero dollars and invested nothing in factories and equipment.

Tesla reports losses because they get less money from car buyers than it costs them to design, make and sell/service the cars. This is clearly described near 2:30 in the video.

Ask any high school accounting teacher if the money Tesla invests in their factories, equipment and such contributes to their reported loss. They’ll say no.

Your statement is partly true.

Technically from a balance sheet perspective you are right at the beginning. An investment does not count as a loss.

However, right after the investment, depreciation starts – and that counts as a loss. Furthermore, to ramp up the Model 3 line, Tesla had to hire people, build out service centers (again, partly depreciated), build new superchargers (depreciation), hire new staff (direct cost) etc.

In the end, the losses are partly due to the follow up of an investment (after all, it doesn’t just sit there) and the botched ramp-up of the Model 3.

HH – yes, you’re right, of course. (Though technically, depreciation does not begin until the asset is “put into service”, which takes a while for Tesla – just look at their huge “construction in progress” asset six months after Model 3 production started).

Anyway, only a tiny percentage of last year’s capex hit the income statement as depreciation. I’m dealing with someone who repeatedly insists ALL capex immediately hits the income statement, and further misrepresents GAAP loss as equal to Tesla’s capital investment. Unfortunately, Nix is very knowledgeable about EVs in general, so a lot of non-financial people get misled by his “non-standard” accounting gibberish. They’re really the ones I’m talking to, so I’m oversimplifying a little.

Finally, the video was focused on cash losses, which exclude depreciation. If we really wanted to get into the weeds, we could talk about accounting for SCTY’s leased assets inflating cash flow from operations (incoming monthly payments count as CFO but the matching outflows to VIE lenders and partners count as financing cash flow). I find that stuff interesting, but I really try to stay out of the weeds on this forum.

Thanks for the comment.

“I’m dealing with someone who repeatedly insists ALL capex immediately hits the income statement, and further misrepresents GAAP loss as equal to Tesla’s capital investment. ”

I’ve never said that, and I didn’t say that here either. Here’s your strawman:
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T will live on regardless of cash management and production issues as long as people continue to believe in the company and loan them money!

:45 seconds in shows the difference between a rapid growth company investing heavily into their future each year, and a company headed for bankruptcy. Tesla finally reached production volume on there first full-production car in 2013. That year they spent 0.1b more than they earned. What did Tesla get the next year for their $0.1b investment? They got an increase in revenue of $1.2b in 2014!! Very got a huge return in revenue growth! Invest $0.1b and increase revenue by $1.2b the next year is HUGE growth company territory!! It is easy to see how well Tesla’s investment in their future has paid off each year by comparing the loss the year before to the growth that investment generated in the next year (revenue delta from one year to the next) 2013: $0.1b loss generated $1.2b in growth in 2014. 2014: $0.3b loss generated $0.8b in growth in 2015. 2015: $0.9b loss generated $3.0b in growth in 2016. 2016: $0.7b loss generated $4.8b in growth in 2017. This is all HUGE return on investing into future sales!! Now the big question: 2017: $2.3b loss — what revenue growth will it generate in future revenue? What we know is that these… Read more »
Another Euro point of view

“Now the big question:
2017: $2.3b loss — what revenue growth will it generate in future revenue?”

It better generates an huge increase of revenues as car manufacturing is a tiny profit margin business. This despite Elon bragging about Tesla huge gross profit margins (using Tesla own “crazy of the hook” arithmetics). If it barely cover your distribution & debt servicing cost then your revenues can increase 10 folds it is still not going to help much.

“2013: $0.1b loss generated $1.2b in growth in 2014.”
“2014: $0.3b loss generated $0.8b in growth in 2015.”
etc.

It’s actually:
“2013: $0.1b loss PLUS 0.3b capital investments generated $1.2b in growth in 2014.”
“2014: $0.3b loss PLUS 1.0b capital investments generated $0.8b in growth in 2015.”
and so on.

2017 was 2.3b loss PLUS 4b+ in capital investments.

Capital investments are not included as part of the loss. Tesla must raise capital to cover their loss PLUS their capital investments.

Look at the itemized expenses on their 2017 income statement. Where is the 4b+ of capital investments? Answer – NOWHERE. Capital investments are not counted as expenses. They show up on the cash flow statement and the balance sheet – not the income statement.

This is basic, basic stuff.

2015: $0.9b loss generated $3.0b in growth in 2016.
2016: $0.7b loss generated $4.8b in growth in 2017

Ignore the last two lines in my reply, I got carried away with cut & paste.

Capital investments are not booked entirely in the year they are accrued, so your numbers do not reflect the actual BOOK cost of those investments in the years I listed. My numbers DO include the partly depreciated cost of those investments in the years that I stated. You are effectively double counting Capital investments by accounting for them fully 100% in the year they are accrued, AND double counting the yearly depreciation costs that are already included in the numbers I used. Why would those costs be: 1) double counted 2) applied in full in the year the money is spent when no companies do that. I think you are completely missing my point. I’m showing how despite losses, those losses represent money going into growing the company (including depreciated Cap from prior years, and also non-cap costs like increasing employee head count ahead of production, etc) instead of spending less, growing slower, and showing profits. I’m showing the clear and obvious results in revenue growth due to Tesla’s choice to prioritize growth over cash profits. I see you completely ignored the massive revenue growth throughout your entire response, when my entire post was focused on illuminating the massive revenue… Read more »

Yes… Tesla is like Amazon and others you have to borrow and spend big to grow big and auto manufacturing is extremely expensive…

Reminded me of a Forbes article…

https://www.forbes.com/sites/erikkobayashisolomon/2018/02/22/tesla-is-structurally-bankrupt-but-so-are-gm-and-ford/#39ce7cdc203c

The big difference is Amazon wasn’t going into an established market with competitors have a lot more money and experience building the product you plan on building.

Someday Tesla will stop the rapid growth and focus on profitability. But hope it doesn’t happen for a long time for the sake of the world

As we can see by several comments here, today’s investors are far too focused on short-term profits. That’s what is fundamentally wrong with so many American businesses today, and it’s why so many businesses which have been around for decades or even centuries, have suddenly failed after the “greed is good” movement began.

Tesla is cutting-edge in many respects, but thank goodness they are old fashioned when it comes to plowing revenue back into growing the company, rather than paying dividends to stockholders! That’s the way to keep a company on a sound financial footing, and it’s reflected in the way that the value of Tesla’s tangible assets are growing faster than its debt.

Go Tesla!

It’s not broke because there are enough people that realize continuing with a fossil fueled economy is a dead end. Emphasis on “dead”.

The support for the people beyond gaining or losses in the market with the hope of better things can be ahead for humanity, specially after Trump.

Car and Driver had a pretty interesting article on Wall Street’s love affair with TSLA: last month. Even when you discount some of the admitted short sellers discussed in the article, the financials do seem pretty sobering:

https://www.caranddriver.com/features/why-is-tesla-so-loved-by-wall-street-feature

“…Cornell also shorts Tesla’s stock but through the hedge fund he runs, SMBP…. “Xs and the Model S appear to be plateauing,” Cornell says”

Actual facts:
2016 Model S/X combined sales: 76,297
2017 Model S/X combined sales: 101,312

This is where the shorters blind themselves to reality. They see a massive 33% increase in sales, and in their eyes they see a plateau.

More intentional blindness from the same hedge fund Tesla shorter Cornell: “Cornell and Damodaran set to find out how market sentiment might be affecting Tesla’s stock price. They looked at Tesla’s returns for every trading day between March 22, 2013, and February 26, 2014, as well as news about the company during that period, including reports of how much money the company was making—or, as was most often the case, how much it was losing. “If the market is rational and relatively efficient, then the run-up in the price of Tesla stock . . . should be the result of information that arrives during that time period,”” They clearly weren’t looking outside their own information bubble, because insideev’s ran a number of stories in that time period about Tesla growing as a company. Like: Upcoming Model X release details. Expansion of Supercharger network with bump to 120kW chargers. Expansion of sales into new nations/markets. Completion of supercharger link coast to coast allowing first coast to coast drive. Sales center expansion. New battery options/upgrades. First official announcements of $35K 200 mile Model 3 being planned for production. Tesla announced their first quarter where they made a profit. Signs deal with Panasonic… Read more »