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Transportation Businesses The Almighty Buck

Tesla Suffering Cash Flow Issues; Every Model S Means a $4,000 Loss 232

An anonymous reader writes: The latest reports from Tesla show a trend of missing positive cash flow targets. Despite previous guidance to the contrary, Tesla is losing more than $4000 per car in operating margin and no sign of near term improvement as they are now reducing their production targets at a time when they are also experiencing pricing pressure. A scan of articles published today on this news reveals a common opinion that Tesla will need to raise more capital soon. A small slice of the Reuters report linked: Tesla has signaled capital spending will drop next year because the company won't be spending on a major vehicle launch. In 2017, Tesla plans to launch its Model 3 line, which the company says will start at about $35,000 and push total sales toward the goal of 500,000 vehicles a year by 2020. Barclays analyst Brian Johnson disagreed with the company's estimates, and said he expects Tesla's capital spending will go up in 2016 and 2017 as the company ramps up its battery factory and Model 3 development. "Their small scale means the cash generation is not as great as they might have hoped for," he said.
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Tesla Suffering Cash Flow Issues; Every Model S Means a $4,000 Loss

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  • Fed bailout too big to fail.
    • nah, we did that with GM, Ford, Chrysler, Toyota, MB, etc.
      And yes, Ford was bailed out since we lent them 10's of billions to revamp with NO INTEREST.
  • by Anonymous Coward on Sunday August 09, 2015 @09:32AM (#50279341)

    Stopping the losses is easy, but would kill the company:

    Stop investing in the battery gigafactory
    Stop investing in the upcoming new models
    Stop investing in the Supercharger network.

    They'd be profitable, but sitting still and would have squandered their future.

    • by Rei ( 128717 ) on Sunday August 09, 2015 @09:54AM (#50279419) Homepage

      That's a serious point. They're not losing money "on every car sold", in that it implies that it's the cost of making the cars that's losing them money. It's the cost of scaling up by orders of magnitude that's losing them money. But that's obviously to be expected.

      Companies investing in Tesla aren't investing on a valuation of them making a few tens of thousands of Model S's per year. They're investing on the prospect of Tesla churning out hundreds of thousands or even millions of electric vehicles, mostly lower end, per year.

      • by russotto ( 537200 ) on Sunday August 09, 2015 @10:07AM (#50279467) Journal

        That's a serious point. They're not losing money "on every car sold", in that it implies that it's the cost of making the cars that's losing them money. It's the cost of scaling up by orders of magnitude that's losing them money. But that's obviously to be expected.

        Well, the summary claims they're losing money on "operating margin", which would exclude capital expenditures due to scaling up. I suppose it's possible a slashdut summary isn't infallible, but I'm pretty sure they've never been wrong before.

        • by Anonymous Coward on Sunday August 09, 2015 @10:44AM (#50279595)

          They have an extremely healthy positive operating margin of over 20% per car (well better than the industry at large).

          And as the revenue from every car goes towards both variable costs and a portion of the fixed cost of the factory and capital equipment to make the cars, they can make it up in volume. The significant positive gross margin per car tells you that they more than cover the variable cost of each car, thus every additional car produced makes them more profitable.

          Not to mention that operating profit at Tesla includes accounting for costs of installing new superchargers, building new sales locations, new Tesla energy business, etc. all of which they continue to significantly invest in the growth of.

          The linked article was written by someone who at best has no idea what they are talking about, and at worst, was purposely spreading FUD.

          Looking forward to the automated electric car revolution that Tesla will bring us in the coming decade. Got my popcorn ready.

          • Mod parent up.

          • by Mr D from 63 ( 3395377 ) on Sunday August 09, 2015 @01:04PM (#50280171)

            They have an extremely healthy positive operating margin of over 20% per car (well better than the industry at large).

            You should be careful with such a generic statement. Most other car manufacturers include product specific R&D, overhead, and sales in their margins. There are different acceptable accounting practices, and so comparing apples to apples can't be done without a little digging and pointing out the differences. It appears that Tesla does not include administrative overhead nor sales and marketing in their operating margin calculation, which I think is kind of odd, but that's Wall Street for you. If you include everything but R&D, they are closer to break even.

      • by mspohr ( 589790 ) on Sunday August 09, 2015 @10:18AM (#50279517)

        I can't believe the stupidity of the financial press. Tesla actually makes 23% profit on every car. The company is investing heavily in new production capacity (batteries,production lines,new models) so they loose money but they have a lot of investors willing to finance their expansion.

        • Re: (Score:3, Informative)

          by Anonymous Coward

          "The financial press is criticizing a company I like so I'm going to make up a stat that says they're actually doing well and call the press stupid"

          Seriously, you throw out "actually making 23% profit" but then put no source what so ever. And you say that investing heavily in new production capacity means that it's fine to lose money. You can only do that for so long. I used to work for a company (the name will go unmentioned for anonymity reasons, but I'll say the were a competitor to Tokyo Joes) that o

      • it is not just scaling up that is costing. The Super Charger Network, combined with service centers, sales stores, fighting against red states, etc. all costs money.
        If they are only losing 4000 / car, I am impressed. Chance are that when they open gigafactory AND have Model X up to at least 20K cars / year ( along with 50K / year on MS), they will be breakeven or close to it.
      • by BradMajors ( 995624 ) on Sunday August 09, 2015 @01:35PM (#50280353)

        Nope. Learn the difference between operating losses versus capital investments. Yes, Tesla is losing money on every car they make.

        And in reality, Tesla has a $14,000 operating loss per car. (not the $4,000 using Telsa's creative accounting.)

        • Mod parent up. GAAP accounting says ~ $14 000 loss per car, the $4k figure is a random 'creative accounting' thing

      • by KGIII ( 973947 )

        I have almost 50k in Tesla stock actually. I picked it up in 2011, it is now worth much more than I paid for it. So, I guess you could say that I am rooting for them. I realize that scaling up takes a goodly sum of money and my investments are almost never short term so I am rooting for them to scale as much as they need to and perhaps a bit more than that just to be sure. If the stocks drop again then I will likely double my investment. Right now they are a bit high and unpredictable though they show plent

    • So they should turn into GM?

    • They could also just charge $10k more per vehicle and they'd be making a profit. It should be achievable, since the only people who buy their cars are rich fools who don't care about economics and want to make a statement about how supposedly "green" they are. These people have another $10k in their pocket.
    • by rtb61 ( 674572 )

      Stop the losses for by far the majority of modern corporations are a lot simpler than that. Stop fudging the books to cheat on taxes ie how many Movies regardless of box office revenues or the self apparent wealth of those conspiring to cheat on tax, are 'losing' money.

      It is normal for a modern business to 'lose' money for the first few years via conspired tax laws and when the initial investment can no longer by fudged to continue to not pay tax, additional 'losing' investments are made. This also inclu

  • The hell you say... (Score:5, Interesting)

    by rmdingler ( 1955220 ) on Sunday August 09, 2015 @09:37AM (#50279355) Journal
    Gaining market share in an entrenched industry by turning convention on its head may not be extremely profitable at first.

    Despite that, it still works sometimes: are Jeff Bezos' ear's ringing?

    • Gaining market share in an entrenched industry by turning convention on its head may not be extremely profitable at first.
      Despite that, it still works sometimes: are Jeff Bezos' ear's ringing?

      Amazon's lack of profitability was/is in some ways artificial - they spent (are spending) a goodly chunk of cash on infrastructure. And even when they weren't (technically) profitable, they still had a healthy cash flow (which Tesla doesn't have).

      With their debt load, an unhealthy cash flow is a real problem. Without cash flow, you're limited in your ability to re-finance or to pay interest while pushing the repayment of principal into the future. (Which isn't the best strategy overall, though it can work if the stars align.)

      • by Rei ( 128717 ) on Sunday August 09, 2015 @10:04AM (#50279455) Homepage

        Tesla's solution to running short on cash is, and has always been, to sell equity. Which is a common approach to startups, and they're still really in a sort of startup mode. It works fine, so long as others think that their plans after scaleup will be profitable. And so far there seems to be plenty of investors who think so.

        • Tesla's solution to running short on cash is, and has always been, to sell equity.

          They've sold plenty of debt alongside that equity. It's a viable strategy, but imposes burdens that equity doesn't. If you don't have a healthy cash flow, equity doesn't come back to bite you in that ass - debt does.

        • Re: (Score:3, Insightful)

          Tesla's solution to running short on cash is, and has always been, to sell equity. Which is a common approach to startups, and they're still really in a sort of startup mode. It works fine, so long as others think that their plans after scaleup will be profitable. And so far there seems to be plenty of investors who think so.

          They also need the stock price to stay high so they can easily raise capital. So the bigger problem is not margin, but it is in missing projections, both in cost and in sales. If you miss your target projections, stock prices will take a hit. A 10 percent drop in sales from projected is pretty bad, not only from a credibility standpoint, but also from a marginal cost of production standpoint. The one thing Tesla has working in its favor is low inventory, so at least they are not likely to get caught in that

        • Yup. The gigafactory is both now, and has always been, their major project. They're going to be in the red until it is built. In the meantime, the waning capital is a chance to invest early for people who are savvy about how revolutionary Tesla is poised to be.
      • Amazon's lack of profitability was/is in some ways artificial - they spent (are spending) a goodly chunk of cash on infrastructure.

        Infrastructure. You mean like building a free supercharger network across the country and internationally?

        • Amazon's lack of profitability was/is in some ways artificial - they spent (are spending) a goodly chunk of cash on infrastructure.

          Infrastructure. You mean like building a free supercharger network across the country and internationally?

          No, I mean things like warehouses and distribution centers and data centers - things that turn around and generate cash flow. I mean the normal meaning of the word infrastructure.

          The word you're looking for is loss leader.

          • Then I'm afraid you don't know what infrastructure means.

            noun
            1.
            the basic, underlying framework or features of a system or organization.
            2.
            the fundamental facilities and systems serving a country, city, or area, as transportation and communication systems, power plants, and schools.
            http://dictionary.reference.co... [reference.com]

            Infrastructure is exactly what the supercharger network is.

    • by Rei ( 128717 )

      Yeah, any long-term Slashdotters remember the jokes year after year about Amazon losing money and implying that anyone who invested in them was an idiot. Heck, it wasn't just Slashdot making jokes about that, even Futurama cracked a joke at Amazon's expense. Of course, Amazon turned their first profit in 2002, and anyone who invested significantly in them in the early days would be filthy rich right now, as they're the US's largest internet retailer and the world's largest cloud computing provider with 54

    • Gaining market share in an entrenched industry by turning convention on its head may not be extremely profitable at first.

      Despite that, it still works sometimes: are Jeff Bezos' ear's ringing?

      Amazon is not profitable because they're pouring money into expansion. If they weren't doing that, that money would show up in their books as profit. I haven't read TFA, but Summary says Tesla is reducing production.

    • Despite that, it still works sometimes

      Try telling that to the people commenting against Uber in the recent Uber thread...

      The funny thing is they probably worship Musk, and so no incongruity.

      • Ah... the Musketeer effect.

        In Elon's defense, do you suppose it's all gravy being a focking nerd hero?

  • by Anonymous Coward on Sunday August 09, 2015 @09:38AM (#50279359)

    Musk has repeatedly said that he's far more interested in changing the world than in making money. The dollars and cents are merely a vehicle for his visions.

    • As long as he has the dough to back up this philosophy it's a good one...

    • Hippies are stupid! News at 11.

    • Musk has repeatedly said that he's far more interested in changing the world than in making money. The dollars and cents are merely a vehicle for his visions.

      Ultimately, dollars and cents are what matters, not vision. "Vision" is only called that in hindsight when the idea succeeds economically. When it fails, we call the would-be visionary a "crackpot".

      You can spend all your money buying Segway and giving them away. But that's only sustainable so long as you're pumping money into it. To really "cha

  • If they include all the investments made in battery technology, charging stations and future lines, then $4k/car is pretty much peanuts.

  • by MoogMan ( 442253 ) on Sunday August 09, 2015 @10:11AM (#50279475)

    Tesla took a huge risk by taking a completely new technology (battery-powered cars) and applying it in a completely new and untested way (performance car). They went into it knowing that they'd be taking a loss for the medium term.

    If Tesla are already at taking only a $4k loss / 10% loss, they're doing extremely well:
    - The "Supercharger" units that are being aggressively installed across many countries will be accounted for within this unit cost... It won't be long until they reach diminshing returns on their deployment, and the impact of this will tail off.
    - They added a number of new product lines, all sinking huge money into R&D. They're close to establishing a range of products so the impact of this will tail off shortly.

    Musk could easily choose to add $4k to the sale cost of each cars with minimal impact and result in a 0-dollar P/L, but increasing production count ensures far better long-term return by economies of scale improvements, as well as learning opportunities when scaling aggressively.

    • Tesla took a huge risk by taking a completely new technology (battery-powered cars) ...

      Electric cars have been around since the mid-1800s [wikipedia.org].

      • Electric cars have been around since the mid-1800s

        From what I've read lately, that's new enough for slashdot.

        • Electric cars have been around since the mid-1800s

          From what I've read lately, that's new enough for slashdot.

          Interestingly enough, the first successful oil well was completed in 1859 by Edwin Drake in Titusville, Pa.

          This led to cheap petroleum fuels for the internal combustion engine, signaling the death knell for the development of electric cars at the time.

          Discuss.

      • Tesla took a huge risk by taking a completely new technology (battery-powered cars) ...

        Electric cars have been around since the mid-1800s [wikipedia.org].

        And the Prius came out in 2000, 3 years before the founding of Tesla. Musk realized that he would have to sell a car for lots of money to fund R&D. The only cars that sell for lots of money are performance vehicles and sports cars. Plus, they typically don't need the range of regular cars.

        I'd say the risk was similar to starting a luxury yacht company, not much more. Electric motors have always been recognized at having a lot of low end torque. Its the development of high end torque that would have

    • Tesla took a huge risk by taking a completely new technology (battery-powered cars) and applying it in a completely new and untested way (performance car).

      Battery-powered cars and utility vehicles have been around since 1896. Their advantages and limitations have been known from the beginning.

      Henry Ford took the opposite direction from Tesla, beginning with a simply conceived but rugged and reliable internal combustion engine as the basis for a mass-market priced family car, light truck and tractor.

      After-market conversions transformed the T into RVs, snow-cats, railcars, bookmobiles, hot rods and pretty anything else you could imagine. Used engines were pul

  • by Greyfox ( 87712 ) on Sunday August 09, 2015 @10:13AM (#50279487) Homepage Journal
    But... they plan to make up for it in volume? There's not a conversation going on there, along the lines of "Hey Elon! We're losing 4 grand per model S sold! You think maybe we should... raise the price by 4 grand?" It's not like there's really any competition. I mean, there are other electric cars, but Tesla's like the Apple of the vehicular manufacturing world.
  • It has been suggested that Tesla should get into the battery business, as a product. They've done a lot of work to improve battery energy density. If they were to market these to laptop and cell phone vendors, would they be able to use that cashflow as a means to prop up the rest of the business?

    • by nojayuk ( 567177 )

      My understanding is that the Tesla car batteries are built from large arrays of commodity Li-ion battery cells, they're nothing special in terms of capacity or size or design. An 80kWh Tesla battery pack might have ten thousand cells each of which is a 3.7V 2.2AH unit of the sort you'd find in a laptop battery pack, arranged in series-parallel.

      Tesla's "secret sauce" is the charging and conditioning of their batteries as well as armouring them against damage in a collision and preventing propagation of a fir

      • by TWX ( 665546 )
        Large hand grenades are called RPGs, or TOWs, or LAWs, SMAWs, etc. They introduce more technology in the form of a launcher, and they require more training and some additional ground-rules for use (ie, clear the area behind you when firing, do not fire from an enclosed space, etc).

        Large Lithium-based batteries do exist, but at the moment the risks associated with them outweigh the packaging headaches when using small commodity batteries. My guess is that as battery control/maintenance technology improv
        • by nojayuk ( 567177 )

          There are also satchel charges which can be, in extremis, thrown a certain distance by hand so they could be classed as "large hand grenades", I suppose. On the other hand there's the Special Atomic Demolition Munition which was (theoretically) man-portable...

          I suspect that large Li-ion technology cells are used in certain circumstances such as submarines but not usually in "civilian" environments like cars because of Li-ion's ability to release its stored energy in a short period of time as heat or even a

          • I suspect that large Li-ion technology cells are used in certain circumstances such as submarines but not usually in "civilian" environments like cars because of Li-ion's ability to release its stored energy in a short period of time as heat or even a low-order explosion due to its low internal resistance.

            If I were designing a submarine, in my probable ignorance, I would use LiFePo. Their big drawback is that they are expensive, but otherwise they are a nice replacement for LiPo. High capacity, high discharge rate if you want it.

            • by TWX ( 665546 )
              How do any/all of these react to seawater? Fires aboard ships are fought with seawater as there's an inexhaustible supply, so it's very likely that at some point at least some seawater will spray on the batteries.
          • https://en.wikipedia.org/wiki/... [wikipedia.org]

            Seems portable enough to me.

      • by swb ( 14022 )

        Tesla's "secret sauce" is the charging and conditioning of their batteries as well as armouring them against damage in a collision and preventing propagation of a fire in a series of cells spreading too quickly to the other cells in the pack.

        I'd say that makes a "Tesla Battery" a unique product even if its constitutent cells aren't that unique.

        If they would/could sell their batteries or powertrains I think there's probably other markets that could use them. Recreational boats is one application that comes to mind.

        Lighting, electronics, small refrigeration, ventilation (excluding AC) all can run off batteries on boats, forgoing running the main engine or a generator but lead acid batteries are heavy and have limited capacity, especially if you

        • I worked on a hybrid boat with over 18,000 Li-ion batteries in the bilge!

          (You don't want it to sink!)

          It had 2 X 100 HP electric motors between the 500 HP diesels and the pod drives. You could run them for an hour at max output (about 12 knots) with the battery capacity it had, and you could get a whole days worth of putting around if you took it easy.

          It recharged with solar panels in under a week, so you could use it every weekend using only the sun.

          Recharging on shorepower was problematic to say the leas

          • by swb ( 14022 )

            What kind of boat was this? 1000 HP of diesel plus Li batteries and seperate motor propulsion? That sounds like a big boat but strangely long runtime on DC power for only needing a week to recharge.

            If I had the money/skill/etc, I'd be sorely tempted to pick up a 20 year old 30' "sport cruiser" in the Searay Sundancer mode for under $20k and try to convert it myself to some kind of low-speed battery-electric populsion.

            A lot of these older cuisers have twin big-block V8s plus room for a 4kw generator and 1

            • Some details and pictures from when the boat was at the Miami Boat Show:
              http://www.tradeonlytoday.com/... [tradeonlytoday.com]

              We had a number of different battery configurations that we tested to try and find the right balance of capacity and weight.

              To get the batteries to charge that fast, the sunpads on the deck unfolded to expose more solar panels, and some dual surface panels were used that had higher output. We also had the batteries in banks that we could selectively charge (or discharge) them based on the power availabl

              • by swb ( 14022 )

                Your link returns a blank page, which is disappointing, I'd like to read about this.

                I think solar is a worthy marine battery extender for any boat -- even if its only a couple of hundred watts, it negates a lot of house power for things like a small DC fridge, stereo, etc. I don't know why every hardtop doesn't have panels or why sundecks aren't lined with them. Net positive (or no worse than net zero) solar for full house functionality seems a stretch if you start including bigger or hungrier appliances,

  • In more than ten years, Tesla turned in a quarterly profit one time. It takes real genius to lose money year-after-yearjust like Steve Jobs. Oh wait, Steve’s companies were profitable.

    I know that the fanboys love to compare Tesla to Amazon, because Jeff Bezos is a loser too (his company also loses money), but both Tesla and Amazon will ultimately fail because you can’t lose money forever. As soon as Amazon tries to raise prices, people will shop elsewhere. Bezos’ strategy is to undercut co

  • Tesla "Losing Money" (Score:4, Interesting)

    by PopeRatzo ( 965947 ) on Sunday August 09, 2015 @12:15PM (#50279949) Journal

    Let's look at a few other companies that are "losing money"

    1. Sony
    2. Sprint
    3. Amazon
    4. Instagram
    5. Snapchat
    6. Box
    7. Twitter

    • That bastard PopeRatzo never posts citations for his ridiculous assertions.

      http://money.cnn.com/2015/01/2... [cnn.com]

    • by Raenex ( 947668 )

      Sony

      A once hugely profitable company that got hit hard by competitors. What's your point?

      Sprint

      Another once successful company that fell on hard times.

      Amazon

      Unlike Tesla, could have been profitable years and years ago, but chose to plow money into expanding. They could cut all that expansion money and be instantly profitable.

      Instagram, Snapchat, Box, Twitter

      Internet companies that may never justify the high evaluations or prices paid for them.

      Tesla may or may not pay off in the long run. They've got plenty of competition and lots of expenses, and they nee

      • Amazon

        Unlike Tesla, could have been profitable years and years ago, but chose to plow money into expanding. They could cut all that expansion money and be instantly profitable.

        Amazon also benefited from the government subsidizing it by not having it charge sales tax for so many years.

        Now that it's on a more even playing field with other stores, it will be interesting to watch.

  • Here in Canada, at least, if you want a Tesla there's a 5 month waiting period to get it. That's how far back the order queue is. There's definitely massive demand, so at least there's that.

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