By on February 2, 2010

We overlooked a key point in our write-up on Tesla’s IPO plans: the profits Elon Musk has been touting are a mirage. As this balance sheet from Tesla’s IPO prospectus [read the whole thing at the SEC here, it’s a giggle] proves, Tesla might have fudged a one-month profit, but the company is hardly on a sustainable footing. Unless you consider seven million bucks in “gross profit” (including Zero Emissions Vehicle credits) enough to offset a nearly $29m operating loss, in which case, I’d like to talk to you about underwriting TTAC’s budget. This also puts into Tesla’s disclosure that it faces declining revenue into some scary perspective. Notch another one up for Farragoian skepticism

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31 Comments on “Tesla’s Profit Claims Are Lies...”


  • avatar
    BryanC

    Did Tesla ever claim they were profitable as a company? I thought they had only claimed they sold Roadsters for more than they cost to produce, so they’re getting some profit stream, although not necessarily enough to cover their other development and business expansion expenses.

  • avatar

    The thing that most concerns me here is that they’ve throttled way back on R&D.

    • 0 avatar
      CarPerson

      Nice catch, Michael.

      Slashing $30M from the previous $41M R&D budget helped the P&L 9 month numbers look a darn sight better but they are still bleeding at a very unhealthy rate.

      I still see the $100M IPO as about $650M short of keeping the lights on. Just a little walking cash as the insiders head out the exits.

    • 0 avatar

      Very nice catch. These guy are supposed to be developing their own unique platform for the Model S for production in 2012, while spending $11m in the first nine months of 2009. That’s not exactly adding up for me.

  • avatar
    lw

    Tesla was trying to get on the ground floor of a “green bubble”… Global Warming was the tip of the spear that opened everything…

    I expect many business models (even with government handouts) to fail as global warming continues to be debunked and people lose interest.

  • avatar
    twotone

    It sounds like the automotive version of the carbon credit trading scam. Just another worthless derivative market and phantom “profits”.

    Twotone

  • avatar
    baggins

    Guys – This isnt a “balance sheet”, its a “statement of operations” also known as a P&L or Profit and Loss statement

    Undermines your credibility to confuse a balance sheet with a P&L as the difference is the first thing you learn in accounting 101.

    Its akin to someone claiming to be an expert on cars, and the confusing the clutch with the brakes.

    • 0 avatar
      Paul Niedermeyer

      Technically correct; but in this case, because the numbers are so bad, it doesn’t much matter. Whether a car isn’t running because of a bad clutch or brakes may be irrelevant when it obviously has no engine (or motor, in Teslas’ case).

    • 0 avatar
      Daanii2

      Thank God I’m not an accountant. People who worry about what financials are called rather than what is in them are missing the point.

    • 0 avatar
      pstephens68

      Cash is king. Check out the SEC registration and cash flow statement. It’s not nearly as bad as the P&L would let you on. It’s not a great company, but it’s viability is a little more than what this simple P&L. This is why financial statements should always be presented as a whole. The P&L is just the tip of the iceberg. Depreciation add back in this case makes a huge difference.

    • 0 avatar
      baggins

      I’m not an accountant either. Like I said, the difference between a balance sheet and a p&l isnt some arcane distinction. And someone who doesnt know the difference is in no position to interpret what the statements say about a company

    • 0 avatar
      Daanii2

      I disagree. You don’t need a weatherman to know which way the wind blows.

  • avatar
    Bill Wade

    Farragoian skepticism…

    Nice. :)

  • avatar
    CyCarConsulting

    I keep telling you it’s the Dale Car.

    • 0 avatar
      bking12762

      LOL! I didn’t think anybody remembered the “Dale”. I went to middle school with Dale Carmichael who the car was named after. His transgendered father was the brain trust of the scheme which never came to fruition. It’s an interesting read on wikipedia.
      http://en.wikipedia.org/wiki/Twentieth_Century_Motor_Car_Corporation

    • 0 avatar
      DweezilSFV

      I have a brochure from the Dale display at the L.A. Auto Show. They even tracked “Liz” on “Unsolved Mysteries”. Surprised a movie wasn’t made ….

  • avatar
    hans007

    i remember tesla was basically taking th emodel S deposits and using that for funding for a while.

    It makes sense, I mean gas is less expensive now, the roadster really isnt even that good of a car and after the celebrities and rich people buying it fad fell off, what do they have to do to make revenue.

    with no research etc, why even bother with tesla when the large established players have cars like the leaf ready to go.

    I mean if the model S had any chance of succeeding whats stopping nissan from just taking the leaf drive train and sticking it in an altima or something. given the reports of mini Es and leafs barely giving 70 miles of range with heaters and such on, I can’t really see the model S selling well either, and itll also probalby be sold at aloss.

    tesla is amoney pit. only the companies that sell gas cars can sink money into “future research” like nissan / toyota can because they have alternate revenue streams. tesla’s alternate revenue stream is hyping up their vaporware and trying to raise money from investors / depositors for cars they keep raising the prices on (like they did on the roadster)

  • avatar
    tauronmaikar

    Accounting book fudging from the company that claimed:
    – 256 mpg fuel economy
    – revolutionary battery technology
    – timely delivery of purchased cars
    – using revenues to develop the next generation in green vehicle technologies
    – Ferrari-like performance
    – zero emissions
    – battery chemicals were harmless to the environment
    – and so on

  • avatar

    @tauronmaikar: having ridden in one, the performance is certainly exceptional. I’m quibbling. the rest of your points are well taken.

  • avatar
    Lokki

    Perhaps I’m just cynical (and I am), but I’ve always remembered that Tesla was developed on the “Silicon Valley model” for businesses. While many people wanted to believe (or at least were told) that this model meant assembling available components into a syngergized unit (like a P.C), the “Silicon Valley” model really is developing a concept and getting it proto-typed, getting some media buzz, and then selling to company to one of the big dogs.

    It’s been done by software developers for decades now – the threat is that the company will challenge Microsoft, while the dream is to sell out to Microsoft before anyone figures out that you don’t really have a viable product.

    Well, Tesla was counting on GM, Ford, or Chrysler to buy them for their technology. Obviously that gambit failed… so now it’s on to the fall back position – an IPO where the current owners can cash out and then hopefully dump all their stock within a year.

  • avatar
    Contrarian

    Sadly for them, they appear to be “not too big to fail”.

  • avatar
    FreedMike

    I just read a C/D blog in which one of their staffers experienced a range of barely 150 Interstate miles. Tesla’s PR department, of course, went bananas on them and reiterated that the range is actually more like 250 miles.

    But the PR flack missed the point: whether the “real range” is 250 or 150 miles, either way, it’s a joke, particularly in a car costing over $100,000.

    Then we had the inevitable Tesla boosters talking about how C/D didn’t know how to drive the car properly. What, like there’s some kind of special technique needed to drive a car on an Interstate highway? One poster talked about how he has to shut off his A/C and electrical accessories on his Tesla to maximize range. People wouldn’t put up with this kind of compromise in a stripped-out economy car; why the hell would ANYONE want to deal with it in a megabuck sports car?

    And while it delivers on the performance promise, the Tesla shares the same problem the Lotus it’s based on: it’s a tiny, cramped car with a one-dimensional, track-oriented performance envelope. That go-kart handling that’s so much fun on a track quickly gets tiresome in the real world.

    Don’t get me wrong: I appreciate all the technology that goes into this car. But even with all of its engineering magic, the Tesla is still NOT a practical car for everyday use, unless you’re willing to put up with massive compromises. The problem is that there are very few motorists willing to put up with those compromises in a $15,000 Corolla, much less a $100,000 car.

  • avatar
    Steven Lang

    Farragoian skepticism… I’ll have to use that in my auction chant.

  • avatar
    ChadS

    @FreedMike

    I’m afraid this is a bit off-topic; I haven’t read Tesla’s financials and don’t have any real comments on that.

    But I did want to address FreedMike’s issue of “the PR flack missing the point”. It seems to me the flack was right on target. CD implied Tesla’s range was not realistic, and I think it’s been adequately shown that it is. The 244-mile number is a government number that is easily achievable under similar conditions. Tesla has a chart on their site (http://www.teslamotors.com/blog4/?p=70) showing anywhere from 80 miles range (at 120mph) to over 400 miles range (at 20mph) that seems quite accurate from user experience. (Note that a gas vehicle’s range will vary by a somewhat similar percentage at such disparate speeds; when gas vehicles mention range, they sure don’t assume worst-case). CD didn’t start with a full battery, and went well over the ~55mph in the government test. The range they did get matched Tesla’s chart very nicely.

    You bring up a separate point that even if 244 miles is accurate, it’s “a joke”. If you regularly drive more than that in a day, it’s obviously not the car for you, but I don’t see how that qualifies it as a joke. Unless I take a road trip in it (which I am planning to do, just for fun), I don’t think I will ever drive more than that in a day–remember that you start with a full “tank” every morning. I never visit a gas station, and I drive anywhere I want. I don’t even bother to look at the range numbers, because I know there’s always enough. It’s MORE convenient for me than my old gas car! I don’t see how that can be a “joke”, even if it doesn’t suit every possible need–no car does.

    By the way, I was the one that made the comment about A/C and electric accessories. I actually said they don’t matter much, while we were discussing range issues. If you want to get the max possible range, or efficiency, sure you can turn them off. But I never do; I don’t have to. The same applies to a gas car–if you want max range or mpg, turn off your electrical accessories.

  • avatar

    Never been sure why TTAC has such a hard-on about bashing Tesla. At least they are out there doing something. But then again, “those who can’t do…” Nobody goes in to buy a Tesla and expects anything like a regular car purchase experience – they all know what they are getting into. Of course Tesla is bleeding cash – they are a Silicon Valley startup.

    As for their accounting statements, maybe, if you want to be journalists, you should have an accountant look at them and get a real evaluation? Nah, that would be too responsible. But then again, TTAC seems about an inch from joining the tea partiers in the political spectrum – uninformed and running around brandishing opinions like facts. Maybe you guys are angling for a Fox buyout?

    Actually it would be nice if TTAC would go back to reviewing cars again? Those reviews seems to be thin on the ground lately.

  • avatar
    crash sled

    Tesla isn’t just “an inch” from joining the political process, they’ve already joined, and are a firm part of Government Motors, if you pay attention to the tax breaks and other benefits they’ve received (which Ford has benefited from as well, quiet as it’s kept).

    If Tesla can stand on its own, great. I doubt they will. This IPO may tell the tale.

  • avatar
    joeaverage

    The Tesla falls into the same category as a motorcyle (or any other two seater). You can’t carry big stuff, doesn’t do well in bad weather, might not be the vehicle you’d choose to long, long trips in and so forth.

    This is “new tech”. No, the auto industry has been able to build EVs for over a decade now with all the standard creature comforts. Tesla is one of the early companies actually building them though and you’re going to pay for the “early adopter” status. Just like early laptops. Just like early LCD or LED TVs. Just like any cutting edge technology.

    Tesla just isn’t set up to build 5,000 of these everyday. They aren’t large scale building stuff at minimize cost yet.

    Give them time. Hopefully they will sell alot of cars and get on the profitable side soon. Can’t imagine any of the big three buying them up though. So not their style of product. GM could just sell us the current European market Opel GT two seater with an EV package if they wanted.


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