epirali
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Re: TSLA corporate outlook

Mon Aug 10, 2015 9:17 am

A few thoughts:

1) Some of the comparisons here are off. If Apple spends millions in R&D, then sells 100 million iPhones it is profitable. Issue is that even if Tesla stopped all future expenditures and just sold the Model S it would lose money and go out of business, which means

2) The expenditures they are making now are REQUIRED (unlike future R&D for an iPhone). Yes it is wise to always create the next product and keep money coming, but in Teslas case the current products have to be a stepping stone to future ones, they are net negative as is by a lot.

3) The Model X expenditures will obviously pay off once Model X starts coming off the production line, as long as it represents a market expansion, not cannibalization of the Model S. The truth is it will be a mix of both, it will be interesting to see how. I do not think Tesla will double sales by adding Model X.

4) The Model 3 will be a much much much lower margin product. So if Tesla is not firmly in the black by the time it launches then they are in trouble.

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Re: TSLA corporate outlook

Mon Aug 10, 2015 9:28 am

epirali wrote:A few thoughts:

1) Some of the comparisons here are off. If Apple spends millions in R&D, then sells 100 million iPhones it is profitable. Issue is that even if Tesla stopped all future expenditures and just sold the Model S it would lose money and go out of business, which means

2) The expenditures they are making now are REQUIRED (unlike future R&D for an iPhone). Yes it is wise to always create the next product and keep money coming, but in Teslas case the current products have to be a stepping stone to future ones, they are net negative as is by a lot.

3) The Model X expenditures will obviously pay off once Model X starts coming off the production line, as long as it represents a market expansion, not cannibalization of the Model S. The truth is it will be a mix of both, it will be interesting to see how. I do not think Tesla will double sales by adding Model X.

4) The Model 3 will be a much much much lower margin product. So if Tesla is not firmly in the black by the time it launches then they are in trouble.

1, they already spent money for Model X and Model 3 so it is a strawman argument to limit sales to just Model S.

3. They have expanded to be able to make 2,000 cars a week of any mix between Model S and Model X. The most they have delivered in the US for a month was 3,500 (about 875 a week). They are geared up for more than double that and have a several months long backlog of Model X orders. Production will be higher with X + S than S alone no matter what at this point.

4. They have stated repeatedly that Model 3 won't be lower margin. It will be lower cost. Cost savings by economies of scale for both number of cars sold and battery packs made in addition to cost reductions due to improved new battery cells (increased density, lower cost er kWh).
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Re: TSLA corporate outlook

Mon Aug 10, 2015 9:43 am

dhanson865 wrote:
epirali wrote: 1, they already spent money for Model X and Model 3 so it is a strawman argument to limit sales to just Model S.

3. They have expanded to be able to make 2,000 cars a week of any mix between Model S and Model X. The most they have delivered in the US for a month was 3,500 (about 875 a week). They are geared up for more than double that and have a several months long backlog of Model X orders. Production will be higher with X + S than S alone no matter what at this point.

4. They have stated repeatedly that Model 3 won't be lower margin. It will be lower cost. Cost savings by economies of scale for both number of cars sold and battery packs made in addition to cost reductions due to improved new battery cells (increased density, lower cost er kWh).
1) Not sure what you mean by strawman argument about Model 3? And I did say they have already spent money on Model X and once production gets rolling they get a return. So what is the disagreement?

3) Again I do agree, it will be a mix of cannibalization and new sales. So sales will have to increase. Model S sales growth is flattening but Model X will generate a new market.

4) Well first I don't quite personally believe that. I think the Model S has a lot more "fat" for the amount of actual content than the Model 3 will probably have. But that won't be known for a while. But what I additionally meant in absolute dollars. So even if you assume a gross margin of 28% the Model S costs less than 1/2 of the current Model S mix. Model S will require many more unit sales (which is the plan anyway), and that will require vast new capital expenditures for assembly line etc. And we are not even discussing the costs of the GigaFactor, where only 60 million so far has been spent. My point is you can use Model S proceed to build Model X, you can use Model X proceed to launch Model S, but the Model S will require vastly more capital to sustain and the absolute margin per car is smaller.

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Re: TSLA corporate outlook

Mon Aug 10, 2015 9:59 am

evnow wrote:This is a FUD article.

This is like saying Apple lost thousands of dollars on every iPhone they sold the day of the launch.
I think you have your analogy wrong.

Since Apple was grossly profitable before the iPhone was released,

This is like saying Apple made millions of dollars on every iPhone they sold the day of the launch.

IMO, Tesla would probably already have failed to meet its massive requirements for ongoing capital infusions, were the competition presented by the rest of the Auto industry not so weak.

Good analysis below, of how badly the automotive industry as a whole is being managed, with a particularly illuminating quote From Andy Palmer on its incompetence in moving into the BEV future:

Marchionne's diagnosis of industry weakness goes far beyond FCA

....Marchionne is right. At least he's right on one core point: The automotive industry, as he described in a presentation in April, is a "capital junkie" and an inefficient steward of its resources.

Its track record of producing returns that fall short of its capital costs already leaves most automakers with measly stock values relative to other industries, limiting their ability to attract even more money for future investments.

That's the prevailing view of more than 15 current and former high-level executives interviewed by Automotive News in recent months. Marchionne's unsolicited, painstaking analysis laid bare industry flaws that many of his peers know to be true but would never have dared put in the form of a 25-page PowerPoint presentation to the world.

"This is the first time that somebody in this business ... is agreeing with the premise the automobile business is a destroyer of capital. It really is," said former General Motors Vice Chairman Bob Lutz.

An analysis by New York University finance professor Aswath Damodaran hammers home Lutz's point.

The auto industry posted returns that eclipsed its cost of capital just four times in the 10-year span ending with 2014. Its median performance over that decade -- earnings that fell 4.8 percent below its cost of capital -- rated as the fifth worst out of 88 industries that he measured.

Damodaran, an expert in equity valuation, highlights the existential threat of the industry continuing its ways: It invites well-capitalized "disruptors" such as Tesla Motors Inc., Apple Inc. and others that believe they can do it better.

"I would not be surprised if the next big disruption of this market comes from companies in healthier businesses and that will bring more pressures on existing automobile companies," Damodaran said in a March blog post. "If there is a light at the end of this tunnel for incumbent automobile companies, I don't see it."...

Take Aston Martin CEO Andy Palmer's response to Marchionne's theory that the industry wastes money by constantly recreating the wheel, rather than standardizing certain technologies.

"We can't even agree on a common plug for a plug-in electric hybrid or a plug-in electric vehicle. How stupid is that?" said Palmer, formerly Nissan's chief planning officer. "What hope do we have of competing with those other industries [for capital] if we can't get over the basics? I think in that sense, actually, the industry is getting worse rather than better." ...
http://www.autonews.com/article/2015081 ... beyond-fca
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evnow
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Re: TSLA corporate outlook

Mon Aug 10, 2015 6:45 pm

edatoakrun wrote:I think you have your analogy wrong.

Since Apple was grossly profitable before the iPhone was released,

This is like saying Apple made millions of dollars on every iPhone they sold the day of the launch.
Depends on what was used to get the "cost".

Essentially if you just use the full R&D cost of the product that is being launched - you will get to the point I wrote (like many did with Volt in the beginning).

Bottom line is - it is FUD.
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edatoakrun
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Re: TSLA corporate outlook

Wed Aug 12, 2015 6:38 pm

evnow wrote: ...Bottom line is - it is FUD.
Somewhat ironic comment, in that those who object to this article seem to think it is somehow unfair to actually report Tesla's bottom-line financial results.

A more coherent criticism of the Reuters article, and by implication all conventional financial reporting, is in this comment:
...Tesla’s overall “loss” is due to the fact that it is building a world-record-shattering Gigafactory that will result in a shit-ton of future revenue and profits; is building a new Supercharger approximately once a week to corner the market on one of the key aspects of the EV market; just dumped a lot of money into R&D to build the earth-moving Tesla Model X (which is sure to make BMW’s and Mercedes’ knees shake), create the quickest mass-market car in history, and develop other innovations we probably haven’t even heard of yet. In other words, it’s not a “loss” — it’s a combination of several #WinningTheFuture moves. You aren’t really losing when you sacrifice a pawn to get checkmate, are you?...
http://evobsession.com/anti-electric-re ... ther-fail/

The reason we have financial regulations requiring publically held corporations to report their present financial condition, is that it is impossible to know whether Tesla's current (and in relation to its sales, truly colossal) expenditures will ever result in any future profits.

In addition, even while reporting its continuing operating losses, Tesla has booked as current revenue (or decreased expenses) taxpayer-funded subsidies.

And each of Tesla's vehicle sales may have much more future loss potential than most manufactures (or to be more precise, company stockholders and lenders) are willing to accept.

Promising S buyers buybacks at overly-optimistic future valuations, and "free" DC charging forever, could result in future costs far exceeding what Tesla has reserved for these liabilities.

So the loss of only ~$4,000 per vehicle sale, may actually turn out to be overly-optimistic.

As I posted in MY OP I think the more interesting point of the Reuters article is that Tesla's problems may be more immediate than whether it can show GAAP operating profits, either years or decades in the future.

The more immediate problem for Tesla may be, where can it raise cash next year?

Quarterly results and conference call last week indicate the next year is going to be interesting.

IMO, TSLA will probably need to raise more cash, and how welcome it finds itself to be in the debt/equity markets is highly dependent on whether it can meet the (lowered) 2015 sales projections it announced last week.
Tesla's problem (again IMO) is that it is unlikely it could borrow the cash it needs next year in the bond market without acknowledging its Junk status, and paying rates of interest that make any future profits even less likely.

So, now lets look at why raising cash along the equity route may also turn out to be out of range, in this comment.

Go to link for full text and graphs:
Engineering cult value, Elon Musk edition

Izabella Kaminska

Elon Musk isn’t just an eccentric visionary with a penchant for Bond-villain scale thinking, he’s a branded cult phenomenon. The man is known for thinking absolutely anything is possible provided enough hard work and belief are thrown at it.

Hyper loops? Check. Manned missions to Mars? Check. AI annihilation? Check. If Elon can dream it, he can make it happen.

But there are those who never bought the Musk hype.

Take Craig Pirrong, the Streetise Prof, as an example. He questions the entrepreneur’s visionary credentials on the grounds that so much of his wealth is derived from government handouts or old-school rent seeking models.

As recently as June, Pirrong noted:

"Elon Musk is a rent seeker masquerading as a visionary. If he is one-tenth the innovator and genius his fawning fans believe him to be he wouldn’t need any subsidies. We should give him the chance to prove it.:

Pirrong really knows his stuff when it comes to market structure and price manipulation. He literally wrote the book about it. So when the Streetwise Prof questions the legitimacy of Musk-associated company stock price runs, it pays to listen.

...as the Prof noted in May 2013, there is a helluva lot to be concerned about when it comes to Tesla’s valuation. Not just the now 85x forward earnings valuation or enterprise value to EBITDA ratio of 1770x (!), but the degree to which a literal bonfire of Tesla shorts accompanied the stock explosion.

Pirrong suspected the mother of all short squeezes may have been responsible. And to prove his point he’d crunched the numbers too:

...the Prof didn’t mince words with his conclusion:

"One other thing stands out. Note the spike in spreads on 13 May. Which just happens to be two days before Tesla announced its secondary public offering. Interesting. Very interesting. I wonder if the SEC is interested. It should be."

...Tesla’s results last week confirmed the electric car maker is losing more than $4,000 on every Model S electric sedan it sells, burning $358m in cash the last quarter alone. The results also included a vehicle sales target warning.

Musk has said he will seek more capital and won’t rule out selling more stock. But of course Tesla stock is already habitually diluted by way of its equity incentive and employee stock purchase plans.

Can Tesla afford to offer more stock to market when its valuation is so dependent on keeping supply out of the securities lending market?

As Lex graphed last week, the company’s free cashflow metrics suggest it might not have a choice:

Who was it again that said “the bigger the lie, the more it will be believed”?
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edatoakrun
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Re: TSLA corporate outlook

Thu Aug 13, 2015 9:54 am

Well, that didn't take very long.

Obviously this offering has been planned for some time, so Musk was not exactly telling the whole story just a few days ago when he said: "...he's considering options to raise more capital, and didn't rule out selling more stock..."

IMO, the only surprise is how small the new float is, only a bit more than one quarter's worth of TSLAs cash requirements, at the last years burn rate.

Making the projection of TSLA moving to positive cash flow in the near future, based largely on the projected large numbers of model X sales
at very high average prices, an even more important target.

Of course, if TSLA reduces sales targets again next quarter, it could just sell more stock, and could continue on this course of financing indefinitely, as long as the supply of TSLA buyers is not exhausted...

Tesla seeks to raise about $500 million through share sale

Company shoring up finances after $359 million cash burn in Q2


Electric automaker Tesla Motors Inc. said it plans to raise about $500 million through the sale of 2.1 million shares...

The offering comes a week after Tesla reported a larger quarterly loss and said it may raise more cash to offset heavy spending on increasing production. Telsa burned through $359 million in cash during the second quarter.

Up to Wednesday's close, Tesla's shares had fallen 12 percent since Aug. 5 when the company reported its results.

The underwriters have a 30-day option to buy up to $75 million of additional shares, Tesla said.

The company said it intended to use the proceeds for development of its energy business, its upcoming Model 3 project, its battery gigafactory and other general purposes.

The offering gives a bit more of a cash cushion to the smallest and youngest publicly held U.S. automaker, which faces huge capital expenditures to expand globally and triple its vehicle lineup.

'Risk reduction'

Musk said last week that the company may raise equity capital “as a risk-reduction measure.” Tesla stock rose 2.8 percent to $244.76 at 10:45 a.m. New York time.

Musk introduced the brand’s first sales incentive on July 29 and on Aug. 5 said that deliveries may fall 10 percent short of the original goal if suppliers can’t deliver needed parts in time.

Tesla raised $226 million in its June 2010 initial public offering, the first IPO for a U.S. automaker in a half century. In May 2013, the company raised $1.08 billion in equity and debt offerings, a move that allowed it to repay its $465 million Energy Department loan nine years ahead of schedule. In February 2014, Tesla borrowed $2.3 billion more in convertible debt to help finance the so-called gigafactory that it’s building near Reno, Nev. In June, Tesla obtained a credit line of as much as $750 million.

Lack of profits

Musk has been candid about Tesla’s capital expenditures and lack of profitability. Increasing battery production and developing new models will require billions in investments and delay consistent profitability....

“Clearly they are not done raising capital. It’s just $500 million, and they’ll need more to bring the Model 3 to market,” Andrea James, an analyst with Dougherty & Co., said in an interview today. “But this gets them through to free cash- flow positive in” the fourth quarter.

Underwriters for the latest offering are Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co., Deutsche Bank AG, Bank of America Corp. and Wells Fargo & Co., according to the filing...
http://www.autonews.com/article/2015081 ... share-sale
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Re: TSLA corporate outlook

Thu Aug 13, 2015 12:44 pm

You just spin so fast you are a blur.
Your previous post seemed to imply Tesla would have a difficult time raising funds through equity.
edatoakrun wrote: ...
So, now lets look at why raising cash along the equity route may also turn out to be out of range...


Today, they announce they are raising cash through equity.
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epirali
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Re: TSLA corporate outlook

Thu Aug 13, 2015 3:34 pm

Zythryn wrote:You just spin so fast you are a blur.
Your previous post seemed to imply Tesla would have a difficult time raising funds through equity.
edatoakrun wrote: ...
So, now lets look at why raising cash along the equity route may also turn out to be out of range...


Today, they announce they are raising cash through equity.


I think they will have no trouble selling the stocks, as there the stock is enjoying hype. But just to make clear they have not yet sold the stock, and Elon Musk is putting up $20 million of his own money is purchase as a show of confidence. Which is a good idea.

But realize this dilutes all current stock holders. Which may make the next round even more "expensive."

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Re: TSLA corporate outlook

Thu Aug 13, 2015 6:55 pm

I just love all the haters... and we know who you are... :roll:
Is Tesla losing $4000 per car sold? Nope, it’s capital investment for future sales
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