By on February 27, 2014

nikola-tesla

Tesla’s shares roared to over $250 on Tuesday February 5th, amid release of financial results. Tesla’s 8-K regulatory filing highlights a record 6,892 Model S’s sold, non-GAAP earnings of $46M ($0.33 on a per share basis), and projected vehicle delivery growth of 55% among others. The shares are currently trading just above the $260 during after-hours trading.

Here we find ourselves at yet another quarterly earnings report, and yet again when looking at the GAAP figures, Tesla posts a net loss of about $74 million, and an EPS of -$0.62. Yet another year of losses for Tesla, but the punch line for accounting stiffs like myself seems to be “who cares!”

From this time last year Tesla’s share price has grown over 600% (this time last year, it was trading at $34.38 versus $248 today).[1] For those of you who have consulted my past work for free investment advice in the past, I apologize, but I am quickly learning that a business degree doesn’t turn you into Jordan Belfort overnight. To capture the highlights of Tesla’s recent results I present you with the good, the bad, and the ugly.

The Good

Tesla exhibited strong quarterly sales growth with revenues up by 43%. An even more impressive figure is the fact that Tesla’s revenue grew by 387% from 2012 to 2013 which was a result of the company’s ability to deliver 22,477 vehicles throughout the year.

Tesla was also able to vastly improve its gross margin. In 2012 the company’s gross margin was just over 7%. In 2013 the margin had improved to almost 23%. By contrast, Porsche’s gross margin in 2012 was 37%.[2] Continued growth in gross margin will be a key factor moving forward to improve profitability.

Strong cash flows from operating activities amount to roughly $258 million. This is the first year for Tesla in which it has exhibited positive cash flow from its operating activities. Tesla also has a large cash balance of over $845 million, largely driven from the proceeds of debt and equity financing.

The Bad (aka the not so good)

While I would be hard pressed to call a net loss of $74 million good, there is still some upside when comparing the loss figure to last year’s loss of $396 million. The 82% reduction in net loss and continued upward trend is a definite positive to Tesla’s less than stellar earnings. Sales growth and increased margins will only help to bring Tesla into the black in future.

However, it still seems that operating expenses are getting the best of the company. While in 2012, total operating expenses amounted to 103% of total revenues, they are only 26% in 2013. Despite the reduction, with a gross profit of only $456 million, the related operating expense figure of $517 million is gobbling up what remains of the gross profit. Selling General and Admin expenses increased by 90%, while Research and Development expenses decreased from $274 million to $232 million. As a high growth company that relies on continued innovation for success, it will be interesting to see how the company will manage R&D expenditure in the future. Tesla could find itself in a Catch-22 situation whereby revenues are dependent on new technology, but profits cannot be delivered without a decrease in its cost structure, which includes spending on this precious R&D.

The Ugly

The ugly fact remains that Tesla’s earnings per share is negative $0.62. Based on Tesla’s February 25th closing stock price, its Price to Earnings multiple is negative 400. Simply put, investors are willing to pay $400 for every $1 in losses the company incurs. If I were to get a message in my inbox that told me that a Nigerian Prince was willing to pay me $400 for every dollar of student debt to my name, it would quickly become part of my Happy Hour story-telling repertoire.

Now I understand that the basic fundamentals of valuation are based on a company’s future earnings, and not their past, but I wouldn’t put my precious dollars into a company before I saw some concrete return.



[1] http://ca.finance.yahoo.com/q/hp?s=TSLA

NB: All calculations completed using Tesla’s 8-K and 10K figures

[2] Calculated using: http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2013/03/Porsche_Annual_Report_2012.bin.html/binarystorageitem/file/Porsche-Download_e.pdf pg. 131

Note: Article was ammended due to the reporter mixing the R&D and SG&A numbers.

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117 Comments on “Tesla’s Latest Filing: The Good, The Bad And The EPS...”


  • avatar
    PrincipalDan

    My greater wonder is about Tesla’s market for their product. In the cars current form, what is the saturation point? How big is the market for a product that expensive with a limited range?

    Graeme makes good points about “R&D”, further R&D is needed to make the product more appealing to a larger slice of the population but can the R&D be done while reaching profitability? How long can the enterprise go on loosing money (even if its “only” 74 million)?

    • 0 avatar
      mike978

      +1 – I was wondering about the saturation point for the S. They obviously have sufficient money to keep going for several years and in that time hope to launch the X and C models which should keep them growing.
      The stock price seems way out of alignment and somebody is going to get an expensive lesson they should have learned back in 2000-2003 with the dot.com bubble.

      • 0 avatar

        I believe they just floated a HUGE debt issue BUT at the rate they have to spend they desperately need sales with gross margin.

        It will be interesting to see what other OEMs do and if Tesla will allow access to their SuperCharger infrastructure to competitors. At some point, that will become an interesting discussion.

    • 0 avatar
      Vulpine

      Tesla’s market apparently continues to grow. In the car’s current form, there is high potential for owners who drive 200 miles or less per day, which is almost everyone. Only those who MUST drive longer distances are impacted by that so-called ‘limited range’. Too many people complain about the Tesla’s range, yet boast proudly about the Chevy Volt’s EV range of <40 miles simply because it has an ICE to stretch it–sacrificing performance in the long run by doing so. With a tiny 6-gallon tank, the Volt itself only has about a 200-mile overall range using both electricity and gas. Meanwhile, refueling a Tesla is a simple matter of plugging it in when the charge gets low–at your own home–for next to no cost by comparison to the $3.40/gallon (local prices) of gas. So which is better, 200 miles at a cost of $20 per fill up, or 200 miles at a cost of $7.50 ($0.11/kwh)?

      You are not the only one commenting about their losses, but at the same time it is obvious that those losses are shrinking even as they are upping R&D. Musk alone has enough money to absorb these losses for now, as long as the brand reaches the potential to become THE main player in EV technologies within the next few years. Tesla has already announced TWO new models to come out in the next few years, starting with a Mercedes-class SUV in about the same price range but with many unique design elements and a more economy-based model (in the general Ford/Chevy range) at an approximate 40% reduction in price. More, he has also commented on a possible pickup truck by 2020. Considering the current pricing of full-size pickup trucks, Tesla could sell them easily at the Model S' pricing structure. The added sales from these models could quickly bring Tesla up into profitability even if they don't challenge other automakers in numbers of vehicles sold.

      None of THAT includes the potential profits of the gross output of Tesla's battery Gigafactory. Tesla has already partnered with at least two different electronics manufacturers who are sharing in the cost of construction and will be buying batteries from Tesla for many of their own products. If Tesla does manage to reduce the cost of manufacture as much as they claim, everybody who makes battery-powered devices will be looking to Tesla to provide their batteries until the other Lithium battery manufacturers catch up. All of this means more profits for Tesla in the relatively-near future.

      Yes, you are right to be concerned, none of what I argue could come to pass, but barring some real disaster, I find that unlikely. But I'm open enough to realize that any one of those arguments above may fail–maybe even a combination; we just don't know. So far Tesla has proven its technologies and made strong progress in a heavily-non-EV-biased market. As such, I think Tesla is going to stick around for a long, long time.

      • 0 avatar
        mike978

        I agree with some of what you said but :

        “In the car’s current form, there is high potential for owners who drive 200 miles or less per day, which is almost everyone.” One small thing – the price. Most people do not spend >$60K on a car so the market is much smaller. Still a few years away from saturation but not as large as just saying those who can drive less than 200 miles a day (and find a quick supercharger).

        • 0 avatar
          Vulpine

          Why the “quick supercharger” when you can simply charge at home? That’s the fallacy of the anti-EV argument. You can do that 200 miles per day WITHOUT the need for a ‘quick supercharger’.

          • 0 avatar
            mike978

            I note you didn`t address the price issue which was my main point.
            Regarding the supercharger. For most uses charging overnight is OK, but in a few weeks time I will be driving from Raleigh to Philadelphia. A Tesla wouldn`t cut it since without having access to a supercharger the recharge times would be measured in hours.

          • 0 avatar
            Vulpine

            There is a Supercharger right on your route in Newark, Delaware at the Delaware Welcome Center/Rest Stop. Not 5 miles from my home. I know it’s there because I’ve seen it for myself.

          • 0 avatar
            WildcatMatt

            I live less than 5 miles from the Delaware welcome center as well. Where is it in the complex?

            I really should stop to at least check it out, but when I’m not avoiding I-95 like the plague it’s because I have somewhere I need to be.

      • 0 avatar
        Hummer

        When’s the last time an automotive company made it as long as tesla has? Tesla has teething issues, of which subsidies/redistribution is Teslas seemingly main income, regardless the company is making pretty impressive feats.
        However tesla has a unique product and unique marketing for it. It is exploring territory no automaker has attempted. I would enthusiastically drive their product, — for the right price, reliability and assurance the company will continue to exist.
        High stock prices with little tangible assets don’t give me much assurance.

        • 0 avatar
          Vulpine

          “When’s the last time an automotive company made it as long as tesla has?”
          Saturn. 1990-2009 (or so)

          • 0 avatar
            Dr. Kenneth Noisewater

            Saturn, regardless of their marketing, was never an actual independent car company.

          • 0 avatar
            Hummer

            Saturn wasn’t independent( as noted above), I give Musk/tesla respect for doing what I figured was an impossible task in this day and age.
            Regulations make it almost impossible to compete with current players, you have to be a billionaire and you have to be prepared to lose it all.

          • 0 avatar

            And commend them for doing so with feet still planted firmly on the ground.

      • 0 avatar

        So I’m going to spend $90K on a car, then have to rent one to drive to SLC for Thanksgiving or to PHX for a conference? I don’t think so.

        “Despite widespread reports to the contrary, Musk told Bloomberg that Panasonic’s participation “is not 100 percent confirmed.“

        • 0 avatar
          mcs

          Let me reword your comment;

          So I’m going to spend $90K on a car, then not be able to afford the airfare to SLC for Thanksgiving or to PHX for a conference? I don’t think so.

          • 0 avatar

            Why should I have to buy a plane ticket, then rent a car after I arrive to be able to take people around with me? Why would I have to fly when the 5 -6 hour drive is peaceful and scenic just so I can sport a $90K ride around town?

            I think the Model S gorgeous. I think that is the secret to its success, not its 200 mile range. Get range to 350 and provide plenty of places to recharge in 30 minutes or so, and I don’t think Tesla would have to drop the price to achieve substantial volume as along as their guaranteed residuals come true.

          • 0 avatar

            > I think the Model S gorgeous. I think that is the secret to its success, not its 200 mile range.

            You’ve obviously never been in much less driven a Tesla S, so it’s unclear how this opinion is relevant.

          • 0 avatar

            RE: “You’ve obviously never been in much less driven a Tesla S, so it’s unclear how this opinion is relevant.”

            And you think you know this exactly how? And you are the arbitrary judge of what is and isn’t relevant too? My! My!

            1. My neighbor has one.

            2. Both ALG and RVI have had Model S to drive. I visit both regularly.

            3. When visiting TrueCar in Austin I visit the Tesla store located in the same shopping area. Its not hard for a member of the automotive press to get a drive.

            I HAVE preferred to ride rather than drive as I don’t want be responsible for shi* that can happen, but I’ve been exposed to the capabilities of the car more than most.

            But you’re the know it all. Maybe you think people have been buying them for their range.

          • 0 avatar

            > And you think you know this exactly how?

            The car operates/drives about as different from any other competitor as possible, and your opinion is that the key to its success is the styling. Hilarious. If anything ignorance is the charitable excuse instead of cluelessness.

            > Maybe you think people have been buying them for their range.

            I don’t even need to explain how stupid this is.

          • 0 avatar

            RE: “The car operates/drives about as different from any other competitor as possible, and your opinion is that the key to its success is the styling. Hilarious. If anything ignorance is the charitable excuse instead of cluelessness.”

            So your opinion is the opinion of those who have actually purchased the car? This from the guy who thinks the Porsche 924 was designed for a boxer engine?

            And this from one who doesn’t know the difference between lawsuits and legal actions filed BY Tesla from those filed by others AGAINST Tesla, but who lumps them all altogether as “law suits AGAINST Tesla.” In fact, many of the law suits AGAINST Tesla have been filed by their own investors, NOT by dealer interests. But you lump them all together for some reason. The lawsuits you claim are suits against Telsa are, in fact, suits by dealer organizations against states, not against Telsa.

            There are many reasons people have purchased the Model S. Many are classic early adopters. Of course, the Model S does have unique and admirable driving dynamics. So does the Roadster. They both have a long way to go to achieve mainstream acceptance.

            Build an ugly car and see how far you get.

          • 0 avatar

            > So your opinion is the opinion of those who have actually purchased the car?

            No, I used this thing called logical reasoning as already explained. Unfortunately logical reasoning is too complicated to explain to the hopelessly clueless so you’re out of luck here.

            > This from the guy who thinks the Porsche 924 was designed for a boxer engine?

            Laughable. I used the word boxster and some clueless idiot read it wrong. Fortunately though it’s recorded for posterity: http://www.thetruthaboutcars.com/2014/02/housekeeping-do-you-want-the-directors-cut/#comment-2848049.

            I have no idea why I replied to someone who can’t even read.

    • 0 avatar
      Dr. Kenneth Noisewater

      Currently, given subsidies and the market as it is today, Tesla can sell every Model S they can currently build at MSRP. It’d be stretch to do so in only NA, but when combined with Europe and China, there’s no doubt. Question is, what is their breakeven in terms of # of cars sold, and can they sell THAT? I think yes, and this is before the Model X (which should prove a whole lot more popular in the US) even comes out.

      If Tesla sold thru traditional dealers, they would probably have 5-digit “additional dealer profit” stickers on them.

  • avatar
    korvetkeith

    Investors refer to this sort of thing as FOO. Friends of Obama. It’s possibly the government picking winners. Or I wear a tinfoil hat, maybe. I didn’t like tesla at $25, $35 and thus certainly not $300. But I also just look like a fool who made no money now. I’m conflicted. On one hand I harp on my company’s and management and executives for not investing in R&D, but when I see a company that does, I don’t like it. I need to contemplate on this.

    • 0 avatar

      > On one hand I harp on my company’s and management and executives for not investing in R&D, but when I see a company that does, I don’t like it.

      The “free market” is pretty shiity when it comes to R&D because it’s in essence looking for the easiest way to convert the heavy lifting already done in academia into $’s. It’s an ironic result of industry “competitiveness” because it’s easier to follow success than spend the money to lead it. That’s why the ye ol legendary private labs (Bell/PARC, maybe MS now) were all financed by monopolies who’re ensure the fruits of their research

      Most people are often surprised that even in “tech” companies usually less than 10% is spent on r&d and it’s all last-20-yard stuff. Apple for example is ~2%.

      • 0 avatar
        Vulpine

        You can’t use a set figure for determining how much should be spent for R&D. You mention that Apple’s R&D is less than 2%, but you’re talking about a company with income in the billions of dollars. If we take an arbitrary figure of $5B as their income (yes, I know that’s not the correct figure, I believe it’s significantly higher), well, 2% of 5B is still around $100million, which is quite a lot for an electronics company. Now, considering the real income figure is ten times that, you’re really talking about a MERE $1B in R&D, a figure far greater than some companies’ gross revenues. As such, the amount required for R&D is highly variable and is contingent on factors unique to the given business.

        • 0 avatar

          > As such, the amount required for R&D is highly variable and is contingent on factors unique to the given business.

          Sure, the best excuse for apple is that they’re a hardware company and thus have significant manufacturing costs, but then again also the most supple margins.

          In general the point is valid that private industry is a terrible place for the government to blow r&d money on, but to be fair Tesla is hardly the worst of it.

          • 0 avatar
            Vulpine

            I will admit the Fisker is a far more SEXY vehicle to look at–it’s too bad they bankrupted.

            Then again, the Fisker wasn’t a BEV either. Maybe if they’d gone BEV they would have received more support and not been forced to lose hundreds of millions of dollars after a single storm passed through New Jersey and flooded 300 cars awaiting shipment.

    • 0 avatar
      imag

      Regarding FOO, what about Fisker? Did he not like them?

      People seem to think Obama is at work when the company does well and they blame Obama when the company tanks.

      Perhaps we are just living in a future where no one is really sure where the next big technological value lies. The DOE has invested money, and some of it will come up roses while some will not. That is to be expected. And the stock market also happens to be in a bubble, which everyone will recognize when it bursts. 19 billion for WhatsApp should be enough to tell you that.

  • avatar
    korvetkeith

    Non generally acceptable accounting practices. Spelling it out helps drive home how stupid it is. The death GAAP reporting could indicate the last leg of the latest stock market run?

  • avatar

    So funny when the free market types can’t stand TSLA riding high but won’t claim stocks can be a shell game.

  • avatar
    bunkie

    First, let’s look at what Tesla has managed to do:

    They’ve started an actual car manufacturer. This is not Delorean or Bricklin or Carbon Motors, they are making a real product and they are growing. I can’t think of any US-based car company that has done that in almost an entire lifetime. That’s a remarkable achievement any way you look at it.

    Second, they are doing it by creating an entirely new kind of car, one that, should they succeed, is really the future of motoring.

    Sure, if you are the sort of investor that is used to established product markets where profits come from squeezing margins, acquisitions or refinancing deals, then Tesla is certainly scary. But that’s the entire point. This is speculative. And, I for one, feel that Tesla and it’s “let’s look deep into the future” approach is exactly what is needed to counterbalance the otherwise stagnant market. They may fail, hell I’ll even admit that they are *likely* to fail. But to quote Monty Python (speaking of Harold the Sheep who wants to fly): “Consider the enormous commercial possibilities should he succeed”.

    • 0 avatar
      charly

      Not only the US. Outside Korea, China and India the last semi successful automaker(at least +10k total production) was Lamborghini. They started making cars in 62 (a lifetime ago)and i have so my doubt if you could call them a mass car maker before they were taken over by Audi.

  • avatar
    danio3834

    I’ve been watching the TSLA saga for quite a while and could never bring myself to jump in because of the bad and ugly reasons above. I typically invest with long positioning in mind, and at this point, TSLA shares must come down as they did before. Too volatile.

    • 0 avatar
      Vulpine

      While I won’t argue your point, remember that less than 20 years ago Apple was down to a mere $15 and “sure to go bankrupt”. You look at them now and they’re fluctuating between $500-$550 with the potential to leap again to that $700 figure or higher (of course, dependent on new product lines which are currently rumored but not officially announced). Apple is still one of the most valuable companies in the world and almost nobody considers them “overvalued”.

      My point is that, like Apple, Tesla may be breaking the bonds that have held automotive technology back. Tesla has proven that you can build an electric car with almost all the same capabilities as an ICE vehicle and not some pokey ‘street-legal golf cart’ that nobody really wants. I’ve seen my first Tesla in daily use and I live nowhere near California, so I know the demand is there. I really think you need to consider that long-term investment again.

      • 0 avatar
        danio3834

        Using Apple as an example to support investing in Tesla is a clear case of hindsight bias and ignores the countless other companies that had potential for growth but instead went bankrupt. Not to mention, comparing consumer electronics to the very cyclical auto industry is apples to oranges.

        Investing in Apple then involved significant risk as Tesla does now. Short investors are blowing up the price of Tesla right now much like the recent boom in 3D printing companies. So again, significant risk is involved and anyone who is apprehensive is certainly justified.

        • 0 avatar
          Vulpine

          I don’t deny risk is involved, but that doesn’t mean I have to be ruled by that risk. I’ve made 3,000% on my Apple investment from time of purchase because I apparently saw something traditional investors didn’t. And I haven’t sold yet, even though at one point my profit came closer to 5,000%. I only wish I’d invested in Tesla sooner.

          • 0 avatar
            danio3834

            We all wish we could have invested in Tesla at $36/share. Thats the power of hindsight. It seems obvious now that it’s at $250, but it wasn’t so obvious when it crashed from nearly $200 to $120.

          • 0 avatar
            Vulpine

            I wouldn’t exactly call that a “crash”, especially since it has risen to that $250 area again in a matter of little over 6 months. And according to the charts looking back over 2 years, their previous high was closer to $170, not $200, which means it was a mere $50 slide or about 25%, not the near-50% fall you imply.

          • 0 avatar
            danio3834

            Why you insist on splitting hairs is beyond me, maybe you’re in Tesla PR or a close student of Musk’s.

            Looking closer, the price fell from exactly $176 to $120 in a period of 3 weeks, representing a 32% decline in that short period. Call it whatever you want, but it’s a very serious rapid fall and representative of extreme volatility in a stock due to high speculation. Not a good long investment at the moment.

          • 0 avatar

            > Call it whatever you want, but it’s a very serious rapid fall and representative of extreme volatility in a stock due to high speculation. Not a good long investment at the moment.

            On the other points you’re substantively right, but “extreme volatility” isn’t mutually exclusive with “long term investment” anymore than “really stable” equates to it. Risk is often something taken for those who can weather the storm in the long run.

          • 0 avatar
            Vulpine

            “… maybe you’re in Tesla PR or a close student of Musk’s.”
            I wish. I could use the money.

            Add to this that Musk himself triggered that fall by saying “Tesla is vastly overpriced” might have been a reason, too. Not instability, but an obvious statement of self-worth.

      • 0 avatar
        imag

        The difference between Tesla and Apple at $15 is that Tesla is not down right now. Buy low, sell high and all that.

        A better analogy would be Google/Apple when they were up, but then went up more.

        Although I still think Tesla is in a market with hard manufacturing restrictions (unlike the internet) and far stronger competition than either Google or Apple had. The other car manufacturers are not morons, and car monopolies are not natural the way internet monopolies are.

        • 0 avatar
          Vulpine

          Personal opinion: Google has no competition.
          Personal opinion: Apple has MAJOR competition.

          Apple has succeeded because they broke the paradigm multiple times, doing things traditional analysts claimed were impossible for them. Essentially what they did wasn’t just copy other brands’ use of technologies but rather take those technologies, study them, then make them work RIGHT.
          * They did it with the PC–which is making itself felt by the fact that their sales are growing while every other brand is seeing shrinkage.
          * They did it with the iPod–taking over the portable media market from Sony and still the top portable media brand despite significantly reduced sales of the iPod itself.
          * They did it with the iPhone–slamming the smartphone market once dominated by Rimm (Blackberry) and Microsoft and still dominating global profit share over all brands.
          * They did it with the iPad–decimating previous tablet offerings and still the single largest-selling tablet PC on the market while making strong inroads into a market everyone believed Apple would never enter–the enterprise.

          Yes, every one of these products was a risk and every one of them had their technology predecessors–that were typically highly niche products with the exception of the PC itself. As such, Apple has shown how the technology should have worked from the beginning and now Tesla appears to be doing the same with the EV market.

          • 0 avatar

            Apple had steve jobs, but now they don’t. Musk is nice, but he’s no Jobs.

          • 0 avatar
            Vulpine

            Is Musk really “nice”, or just less abrasive? After all, Jobs was his mentor for both SpaceX and Tesla.

          • 0 avatar

            > Is Musk really “nice”, or just less abrasive? After all, Jobs was his mentor for both SpaceX and Tesla.

            Jobs is one of the better project managers ever in that he’s perhaps the best at selling his projects.

            Musk is a technologist with good business sense. They can each be successful but the two aren’t really the same.

            Speaking of which, Paypal was clever, but not in the same league as Apple was.

          • 0 avatar
            Vulpine

            True, agenthex. On the other hand, PayPal came before SpaceX and Tesla and gave him enough money to start both of these newer projects. If you pay attention to how Tesla is operating now, you can see Jobs’ influence through the fact that they’re not releasing products that aren’t ready and working hard to ensure their customers are happy. Yes, it costs more, but it means more word-of-mouth advertising and much more loyal buyers.

  • avatar
    ClutchCarGo

    “I wouldn’t put my precious dollars into a company before I saw some concrete return.”

    However, betting on a sure thing doesn’t yield much of a payout.

  • avatar
    kosmo

    This is a tricky on e for Tesla. The more they increase their model range and total sales quantity, the more they will be regarded as a Regular Old Car Manufacturer. And that won’t help support the current share premium.

    But I suspect that Musk has an exit strategy of less than 5 years that involves somebody else acquiring the company at an even greater premium. Not that he isn’t rich enough, already.

    • 0 avatar
      Vulpine

      I won’t take that bet. While Musk may sell out to someone else eventually, like PayPal, he won’t do so until the product can support itself. That’s more than 5 years down the road for now.

      • 0 avatar
        imag

        Tesla isn’t Musk’s first love. That would be SpaceX. Mercedes made his continued leadership for two years a condition of their investment. At this point, he can’t leave without tanking the stock, but I wouldn’t be surprised if he cuts his hours way back behind the scenes at some point.

        • 0 avatar
          Vulpine

          You forget who his mentor was. Elon Musk has a role model who proved you can’t just sit back and let everyone else do the job; you have to be holding their noses to the grindstone to make sure the end product is the best it can be for the money.

    • 0 avatar
      bunkie

      At the risk of being accused of “hindsight bias”, Apple was talked about as a takeover target back in the 1990s. And, certainly, a lot of visionary companies fail for various reasons. But the comparison between Apple and Tesla is most certainly valid. Both are leaders, not followers. And history has shown that some leaders end up dominating their markets. That’s the bet here.

      Furthermore I think that Musk is not creating Tesla in order to sell it to Toyota or Apple, for that matter. I really think that he is the Man Who Sold the Moon*. It’s why I admire Musk so much. Unlike some of the really wealthy, it’s not about how much, it’s about what can be done with it.

      * I would bet that Heinlein’s novel of that name is one of Musk’s favorite books.

  • avatar
    stingray65

    The current price of Tesla stock seems to be based entirely on “best case” thinking including beliefs that 1) massive government EV subsidies will continue indefinitely, 2) S model sales will continue to grow at high double-digit rates, 3) no longer-term problems arise with battery life, battery fires, etc. that damage the brand and/or increase warranty costs, 4)the future Tesla models will be brought in on budget and on time and will be highly popular (with subsidies), 5) the lack of a dealer network will not limit sales and/or may increase profits, and 6) big name players will not enter the EV market in a serious way. I highly doubt that all of these conditions will play out, which means the stock is seriously overvalued unless all the good stuff does play out.

    • 0 avatar
      Vulpine

      It’s a good thing you qualified your statement because…

      1) We all know the subsidies will come to an end eventually; the product needs to stand on its own and Tesla is doing its best to get their infrastructure in place before those subsidies end.
      2) Model S sales will continue to grow–until the Model X hits the road. At which point Model S sales may slow, but Model X sales will take over the high growth, followed by the Model E and the Model Y, all of which will be aimed at different segments of the automotive market.
      3) As yet, battery life, battery fires, etc. don’t seem to have any effect on the market perception of Tesla’s products as in every case the issues were not caused by the vehicle itself but rather external conditions that in most cases were completely covered by their owners’ insurance due to accident/road hazard. The so-called ‘battery fires while charging’ were due to overloading the owners’ homes’ aging electrical systems where they used an existing 220V plug rather than a purpose-installed Tesla recharger. Even there, it seems the car is capable of monitoring the temperature of the socket it is plugged into and modulating the charge rate to prevent overheating through a relatively minor software change.
      4) Based on personal experience at an auto show, plus the fact that I’ve seen a Tesla ‘in the wild’ in a local town I’d say the models are likely to be popular–even when ignoring the subsidies which I discussed earlier. So far Musk has lived up to his word on the pricing of his vehicles and he has promised that future models will become more reasonably priced with the existing markets.
      5) A dealer network adds cost while doing little to improve sales. At the moment Tesla doesn’t have the resources to pre-stock even a single dealership as every single model coming off the assembly lines is already sold–with a 6-8 week backlog. It wasn’t that long ago that the backlog was in the range of 6 months, but Tesla’s production speed has improved and they are catching up to current demand. Maybe–and I do say MAYBE–they will consider a traditional dealership network once production exceeds demand.
      6) We already know the big-name players are entering–albeit with very limited products. With the exception of Nissan and BMW, nobody else offers a true BEV for the market as yet and both of those are limited in range and capabilities–both smaller than the Tesla and lacking many of its comforts (though the BMW does come closer in both comfort and price to the Tesla).

      In other words, your belief that Tesla is relying on those factors is weak at best, considering that most agree that those conditions simply won’t last. However, by taking advantage of those conditions now, Tesla gets the lead time it needs to reach profitability and stability BEFORE each of those factors erodes. By that time most of their infrastructure will be in place and the costs of building will fall dramatically, letting them play on a fairly even footing with the ‘big name players.’

      • 0 avatar
        stingray65

        I don’t know what Tesla is relying on, my comments were about investors that seem to think the stock is a good value at $250+ per share, even though the company has never made an annual profit. We also don’t know what the long-term issues might be with batteries, because the car hasn’t been on the market for 8-10 years, but if problems do arise it could be very costly to Tesla and the EV industry. I disagree that sales will remain high if subsidies are eliminated, because then the only people that will buy EVs will be the real tree-huggers, which is a pretty small group. Assuming you are correct and Tesla’s new cheaper models take sales from the model S, it is hard to see how that will improve the firm’s profit prospects since margins are typically smaller on less expensive cars. Thus it seems unlikely that the current stock price can be justified unless you believe there will be no problems for the firm or the industry in the coming years. I believe that is very wishful thinking.

        • 0 avatar
          danio3834

          People don’t think it’s a good value from a traditional stock buying standpoint. From most measures, it sucks, as pointed out in the article. It’s being bought by speculators trying to short sell and make a quick buck.

          • 0 avatar
            Pch101

            Benjamin Graham (the father of modern securities analysis and Warren Buffett’s mentor) noted this distinction:

            “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

            By definition, one does not “invest” in Tesla, as there are no earnings. Tesla is a speculative play by its very nature — one is betting that someone else will pay more for it later than you did.

          • 0 avatar

            > By definition, one does not “invest” in Tesla, as there are no earnings. Tesla is a speculative play by its very nature — one is betting that someone else will pay more for it later than you did.

            Sometimes the value isn’t apparently obvious to institutional investors. Eg bitcoin, whatsapp.

          • 0 avatar
            Vulpine

            A “speculative” investment is still an investment–in the hopes that you get more return than you put out. If you expect a secure dividend you’re not investing, you’re opening a savings account.

          • 0 avatar
            Pch101

            The implication of Graham’s point is that valuation of an investment is derived by the company’s ability to produce profit. Earnings provide the company with intrinsic value, and a tangible track record that provide a basis for determining its worthiness as an investment.

            Accordingly, anything that doesn’t produce earnings isn’t an “investment.”

            Warren Buffett’s strategy has been to look for stocks where the price is discounted relative to the risk. That is generally a prudent strategy for not losing money over the long haul.

            Volatility is a good indication that the buyers and sellers of the stock are not engaging in this practice. They have other motivations, i.e. they are the dumb money, they are hoping to use the greater fool theory to exploit the dumb money, or they are betting on short-term cycles to produce stock profits, irrespective of underlying fundamentals.

          • 0 avatar
            Vulpine

            Again, I wouldn’t bet on that. Sure, there will be some ‘short sell’ traders, but the good investors are those who hang on for the long term.

          • 0 avatar

            > Warren Buffett’s strategy

            I though Buffett’s big trick (the other sid of investment) was to use insurance float. Not entirely dissimilar to MBS/CDO/etc really but it wasn’t collectively big enough to crash the market.

        • 0 avatar
          Vulpine

          You appear to be jumping to conclusions. That can be dangerous if you’re playing in the stock market and in industry itself. You simply cannot make assumptions based on personal opinion; they are only guesses.

          True, we don’t know what the long-term issues may be, but if Tesla is currently using essentially the same basic batteries as–let’s say the Prius–then they should have a minimum 7 year lifespan and with proper management that could extend much longer. I’d say double that is possible even without making any other changes. However, with Tesla creating that Gigafactory, they may install control circuitry that generates a longer usable life.

          Again, we don’t know exactly what Tesla is doing different, but it’s obvious that they’re doing something right that goes far beyond a mere $7,000 incentive to sell more than 20,000 cars in a year. The Volt by comparison did abysmally its first year on the market as buyers envisioned it as simply too expensive for what it is DESPITE having a $7K incentive on a much less pricy car. GM had to cut the price by $5K on its own to realize the surge in sales that’s supporting the model now. And now they’re trying to build a Cadillac version which will run in the Tesla’s price range. I think they’re making a mistake myself and again overpricing it, but we’ll just have to wait and see. Meanwhile, Tesla orders keep coming in as fast as Tesla can make them.

          And yes, your argument about, “… margins are typically smaller on less expensive cars,” and that’s obscenely proven by the current price and profit levels on pickup trucks right now. But a well-designed Model X could still fall into the higher range of its class and still be profitable and by simply changing certain materials and losing weight (which also means changing shape and size) they can pull the cost of the body down somewhat while that potential 40% reduction in battery cost would make up the lion’s share of the price reduction. Again, you have to look at the ‘bigger picture’ and not focus on just one aspect of the product.

          What I fully expect is that the firm’s potential profits can only keep going up as they add to the lineup and reduce overhead costs. As I’ve stated before, the initial outlay on any project is going to be high–prohibitive to most. But we wouldn’t be where we are today if there weren’t people willing to bet everything they have on a new concept. In fact, many lost more than their fortunes when they failed–losing their lives as missing even a single detail prevented an invention from succeeding. (The first airplane to achieve controlled flight would have been powered by a steam engine–had the one the inventor received met the specification he had ordered. Instead, due to its lower output and heavier weight, he failed to clear a rock in the middle of the lake he was using as a runway. Costing him his life. That was roughly 3 years before the Wright Bros. first flight.)

          There’s nothing wrong with being doubtful, but you can’t be a pessimist and hope to succeed. You have to get into the game for the long run and not jump ship at the first sign of a storm. Tesla survived that first dip in value and is now worth more than ever. You may have already missed that boat.

          • 0 avatar
            jhefner

            (The first airplane to achieve controlled flight would have been powered by a steam engine–had the one the inventor received met the specification he had ordered. Instead, due to its lower output and heavier weight, he failed to clear a rock in the middle of the lake he was using as a runway. Costing him his life. That was roughly 3 years before the Wright Bros. first flight.)

            Who are you talking about; I would like to know more about them since this is my area of study; and know most if not all the steam aeroplane pioneers.

          • 0 avatar
            Vulpine

            While I do not remember his name, he was a European; I think Austrian, but I don’t remember for certain. I learned the information almost 40 years ago. My reference is James Burke’s book (and educational documentaries) called “Connections”.

          • 0 avatar
            jhefner

            That was Wilhelm Kress; the plane the Drachenflieger. It had a Daimler automotive engine, 22 kW (30 hp); which I believed was a petrol, and not a steam engine.

            Like other previous designs, the Drachenflieger had rudders and elevators (including water rudders); but no means of lateral control, such as alerons or wing warping. It quite possiblity could have flown had the engine not weighed too much; but it would have been difficult to control; and he would have joined Flix du Temple, Clément Ader and others in making brief, barely controlled hops instead of controlled, sustained flight.

          • 0 avatar

            Tesla cannot reduce overhead costs. It has to increase them. And that’s the problem.

          • 0 avatar
            Vulpine

            That’s probably the one, jhefner, and I’ll admit to maybe mis-remembering the steam engine. And I’m assuming you mean “lateral control” as “roll” rather than ‘left-to-right’. I most specifically remember the under-powered, too heavy engine statement.

          • 0 avatar
            Vulpine

            @Ruggles: “Tesla cannot reduce overhead costs. It has to increase them. And that’s the problem.”

            Why? I agree that in the short term you are correct, but you imply that they can NEVER reduce overhead costs–something every other brand is attempting even now.

            But when I spoke of ‘reducing costs’ I was also speaking of all the startup costs; the building of factories, the setup of the Supercharger network, etc. These are relatively short-term (albeit expensive) costs that will go down as those projects are completed, leaving Tesla to focus on product more than expansion. Those other brands are currently shutting down and even divesting themselves of unused plants (a potential mistake by Daimler Chrysler considering Fiat/Chrysler now has need of more assembly area for trucks). Ford is now looking for a $12B infusion of cash (loan) due to its own dodging of Federal loans which might have saved them from putting even the Blue Oval itself on the line.

            I’m not saying you’re wrong here, but I think you’re again taking too small of a view when I was trying to go Big Picture.

  • avatar
    Pch101

    I’m not sure where some of these numbers are coming from.

    R&D during 2013 was 15% lower than it had been during 2012 (cut from $274M to $232M.) Now you know one reason why the Model X has been delayed, yet again — they aren’t spending enough to hit their earlier launch targets.

    SG&A is also up. You’d expect that as the sales volumes grow, but the 10-K implies that the direct sales that overstate the gross margins end up costing them below the line:

    “SG&A expenses for the year ended December 31, 2013 were $285.6 million, an increase from $150.4 million for the year ended December 31, 2012. SG&A expenses increased primarily from higher headcount and costs to support an expanded retail, service and Supercharger footprint as well as the general growth of the business. The $135.2 million increase in our SG&A expenses during the year ended December 31, 2013 consisted primarily of a $62.8 million increase in employee compensation expenses related to higher sales and marketing headcount to support sales activities worldwide and higher general and administrative headcount to support the expansion of the business, a $36.8 million increase in office, information technology and facilities-related costs to support the growth of our business as well as sales and marketing activities to handle our expanding market presence, a $17.8 million increase in stock-based compensation expense related to a larger number of outstanding equity awards due to additional headcount and generally an increasing common stock valuation applied to new grants and a $17.2 million increase in professional and outside services costs.”

    In other words, selling a car costs them about $13,000 per unit in overhead. A fair chunk of that reflects the high costs of the direct sales model.

    Still, what’s good here is that the company seems to be actually making money on the cars themselves, even when you make allowances for the absurdly high SG&A. Where they get clobbered is when R&D is added to the mix, which is a problem if the company expects to develop new products in the future; this is a form of deferred maintenance that is not sustainable.

    What’s bad is that revenues are vulnerable. I think that we’re going to find in a year or two that it starts running out of customers who are willing to pay that much for one of these cars. When revenues per unit fall, the margins will get even worse.

    What could be really good is this new battery venture. Not due to the alleged cost benefits (of which we should all be skeptical), but because it makes Tesla more of an energy company and less of an automaker. The guys who run this business are playing fast and loose with aspects of the accounting and are producing more hype than actual unit sales, but they’re also pretty damned smart and may actually turn this faking it into making it. I’m skeptical, but impressed.

    • 0 avatar
      Vulpine

      You’re comparing a quarterly report to an annual report. Read the article again as the annual report was discussed a couple weeks ago.

      • 0 avatar
        Pch101

        I’m reading the 10-K, which is the annual report.

        You really know nothing about finance at all. (Let’s remember that you’re the same guy who thought that $65 billion rounded up to $1 trillion.)

        You should stop trying to talk about it, as you’re clearly not qualified to do it.

        • 0 avatar
          Vulpine

          Attacking the messenger means you can’t argue the message.

          • 0 avatar
            Pch101

            In this case, the messenger is illiterate.

            I referenced annual numbers. Your comment: “You’re comparing a quarterly report to an annual report.”

            If you can’t handle even basic English, then there’s not much point dealing with you on a forum that depends upon its users having a working knowledge of the language.

          • 0 avatar
            Vulpine

            My argument stands; you’re comparing an annual report to a quarterly report. As such, your very first statement gives the rest of the argument the lie: “I’m not sure where some of these numbers are coming from.” The figures, by the writer’s own statement, come from the QUARTERLY REPORT, which will obviously be different from the ANNUAL report.

            I’m not even having to crunch numbers here; I only need to have the ability to read and comprehend.

          • 0 avatar
            Pch101

            “I’m not even having to crunch numbers here”

            That’s fortunate, as you obviously don’t know how to do that.

            Without being too blunt to the author, I was trying to point out that this article contains some notable errors. (The references to SG&A and R&D are way off.) But you wouldn’t have picked up on those mistakes, since you have no idea how to read a financial statement.

          • 0 avatar
            Vulpine

            Then be clear in your message from the outset.

            Oh, and stop attacking the messenger; all it does is make you look like a fool.

          • 0 avatar
            Pch101

            A guy who thinks that $65 billion rounds up to $1 trillion and who can’t tell the difference between quarterly and annual numbers even though they are clearly identified isn’t in a position to be judging anyone else’s intelligence.

            I’m not sure what it is that you’re good at, but understanding the car industry and financial analysis obviously aren’t on the list.

          • 0 avatar
            Vulpine

            *sigh* Let it go, Pch, the more you belittle me, the more childish you sound. Anyone, even you, can and will make mistakes–yes, even Billion dollar mistakes–or have you forgotten that a certain VERY expensive satellite to Mars failed to achieve orbit due to a misplaced decimal point in the miles to kilometers conversion. Harping on such an insignificant fact since it really made NO difference to the argument itself is only sour grapes.

            Oh, and the number was more like $95B with a misplaced decimal point.

          • 0 avatar
            Pch101

            Misplacing a decimal point to miss $900 billion, and combining that with a failure to understand the difference between total and marginal revenue, are just two examples of how incapable you are.

            Confusing quarterly with annual figures, as you have immediately above, is a third example.

            You’re aggressively unintelligent to the point of ridiculousness. You’re so inept that you don’t even realize how embarrassed that you should be. The Dunning-Kruger effect in high gear — go ahead and Google that, if you know how.

          • 0 avatar
            Vulpine

            You’re like a bulldog that just won’t let go, even after his owner has walked away. Very well. Just keep going. Your relevance grows less with every attack.

            The fox has already escaped, you only have a couple tufts of fur to chew on.

          • 0 avatar
            Pch101

            It’s not really that complicated. As is your cousin Al, you’re uninformed, verbose and too unintelligent to grasp that you suffer from those deficiencies.

            Facts only confuse you, and any attempt to maintain an intelligent discussion with you is a waste of time.

          • 0 avatar
            Vulpine

            Ok, you win; you get the last word. Happy now?

          • 0 avatar

            > Pch, the more you belittle me, the more childish you sound. Anyone, even you, can and will make mistakes

            Just some friendly advice; it’s often best to drop the shovel when on another man’s territory. PCH isn’t really a villain here.

    • 0 avatar

      > but because it makes Tesla more of an energy company and less of an automaker. The guys who run this business are playing fast and loose with aspects of the accounting and are producing more hype than actual unit sales, but they’re also pretty damned smart and may actually turn this faking it into making it. I’m skeptical, but impressed.

      Many surprising successes in business often always employ very unconventional thinking. Apple as fashion brand instead of tech company, F1 as media instead of racing, Porsche as clever financier instead of carmaker, etc. I don’t really grasp how this one works, but I guess we’ll see.

      Also r&d costs can be less of a concern if you can get someone else to pay for it, esp if you get to keep the patent portfolio.

      • 0 avatar
        Pch101

        Tesla is using this season of hype to issue convertible bonds, which will allow it to pay for the new battery plant (i.e. add an asset to its balance sheet) that is indirectly funded by the inflated stock price. That doesn’t touch earnings directly.

        My guess is that the stock price is a pleasant surprise to those at the helm, but they are smart enough to exploit that run up in an intelligent fashion. Good management counts for a lot, and there is some very good management here.

        In the US, R&D is a dollar-for-dollar reduction in net income. That’s a bigger hurdle to climb. They need to squeeze more value out of the sales network, and push down the SG&A per unit.

      • 0 avatar
        Vulpine

        And with Samsung and Panasonic already partnering in on the Gigafactory, some of that R&D is already paid for.

    • 0 avatar

      RE: “In other words, selling a car costs them about $13,000 per unit in overhead. A fair chunk of that reflects the high costs of the direct sales model.”

      Excellent observation. Yes, Tesla’s management IS playing it fast and loose with accounting. It doesn’t seem to have hurt them with investors, who continue to drive the stock price based on faith and hope. The Apple rumor, the Giga Factory announcement, all carefully choreographed. I commend them for their creativity but remain skeptical.

      My two big issues? What happens if their optimistic guaranteed residuals don’t come through? I still don’t see any set up for possible loss on those. I don’t see any mention of how many of the sales are based on the guaranteed residuals. Then there is the ultimate issue of the cash requirements to do everything, including owning all of the sales points.

      Time will tell.

  • avatar
    RogerB34

    “but I wouldn’t put my precious dollars into a company before I saw some concrete return.”
    You wouldn’t but the EPA has and will.

  • avatar

    RE: “Tesla was also able to vastly improve its gross margin. In 2012 the company’s gross margin was just over 7%. In 2013 the margin had improved to almost 23%. By contrast, Porsche’s gross margin in 2012 was 37%. Continued growth in gross margin will be a key factor moving forward to improve profitability.”

    And Porsche’s gross margin did NOT include retail gross margin kept by their dealers. Add in another 10% to the Porsche number to get an idea of how far Tesla has to go to meet the Porsche benchmark.

  • avatar

    RE: “Despite the reduction, with a gross profit of only $456 million, the related operating expense figure of $517 million is gobbling up what remains of the gross profit. It is interesting to see that despite the decrease in Selling General and Admin expenses from $274 million to $232 million, Research and Development expenses grew by 90%. As a high growth company that relies on continued innovation for success, Tesla could find itself in a Catch-22 situation whereby revenues are dependent on new technology, but profits cannot be delivered without a decrease in its cost structure, which includes spending on this precious R&D.”

    So they need to keep up R&D, build out an ambitious recharging infrastructure, construct a battery Giga Factory, whatever that is, AND own all of their distribution points.

    The math still doesn’t work.

    RE: “Now I understand that the basic fundamentals of valuation are based on a company’s future earnings, and not their past, but I wouldn’t put my precious dollars into a company before I saw some concrete return.”

    Excellent sum up. One can hope Tesla achieves some degree of success without investing one’s own capital. BUT if you’re really committed, have at it.

  • avatar

    http://www.newspressusa.com/public/ViewPressRelease.aspx?pr=39560&pr_ref=4014

    The following may be significant:

    “The convertible senior notes due 2019 will be convertible into cash, shares of Tesla’s common stock, or a combination thereof, at Tesla’s election. The convertible senior notes due 2021 will be convertible into cash and, if applicable, shares of Tesla’s common stock (subject to Tesla’s right to deliver cash in lieu of such shares of common stock). The interest rate, conversion rate and other terms of the notes are to be determined.”

    It WILL be interesting so see how this goes.

  • avatar

    RE: “I’m sure a similar tale of woe and then some can be told for that design, but it went on to become porsche’s “boxster”-type lineup of the time (saved the company, etc, etc). But then that was sold with porsche margins.”

    Yup. You just described the 914, not the 924, a boxster from jump.

    http://en.wikipedia.org/wiki/Porsche_914

    • 0 avatar

      It gets better. Not only can I read, and can read AND write papers as well. Stay tuned.

    • 0 avatar

      > Yup. You just described the 914, not the 924, a boxster from jump.

      No, it’ll just forever be beyond your reading skills to grasp it wasn’t referring to engine layout at all, just as it’ll forever be beyond your character to stop sh1tposting on the main trunk.

      pch101 once claimed that you’re not as hopeless as Big Al, and I begged to differ. It’s not often that pch can be shown to be so wrong, so I will cherish this rare and precious moment thanks to you.

  • avatar

    RE: “Yup. You just described the 914, not the 924, a boxster from jump.
    No, it’ll just forever be beyond your reading skills to grasp it wasn’t referring to engine layout at all, just as it’ll forever be beyond your character to stop sh1tposting on the main trunk.”

    If you say so.

    RE: “pch101 once claimed that you’re not as hopeless as Big Al, and I begged to differ. It’s not often that pch can be shown to be so wrong, so I will cherish this rare and precious moment thanks to you.”

    Cherish away. :)

    Sigh………..

  • avatar

    RE: “Tesla cannot reduce overhead costs. It has to increase them. And that’s the problem.” Why? I agree that in the short term you are correct, but you imply that they can NEVER reduce overhead costs–something every other brand is attempting even now.”

    They have to get through the short term to get to the long term. That’s the discussion.

    RE: “But when I spoke of ‘reducing costs’ I was also speaking of all the startup costs; the building of factories, the setup of the Supercharger network, etc. These are relatively short-term (albeit expensive) costs that will go down as those projects are completed, leaving Tesla to focus on product more than expansion.”

    And this is the major undertaking that requires massive amounts of capital, capital Tesla is NOT creating through everyday operations. The discussion is whether or not Tesla can accomplish all of this without selling off its dealer network for capital at some point.

    RE: “Those other brands are currently shutting down and even divesting themselves of unused plants (a potential mistake by Daimler Chrysler considering Fiat/Chrysler now has need of more assembly area for trucks).”

    Huh? How so? GM has reopened Spring Hill. Chrysler will run overtime at its current plants to avoid building a new Ram assembly plant. Your info is about 5 years old.

    RE: “Ford is now looking for a $12B infusion of cash (loan) due to its own dodging of Federal loans which might have saved them from putting even the Blue Oval itself on the line.”

    First, Ford DID hock the Blue Oval. Second, Ford is NOT looking for $12 billion in cash. They are looking to EXPAND their current lines of credit by $1.3 Billion.

    • 0 avatar
      Vulpine

      Ruggles, by your own words I quoted, you IMPLIED a total inability to reduce overhead, clarifying now only emphasizes my argument that they could reduce costs once the initial startup was completed. I even CLEARLY stated that I agreed with you “in the short term”. Argument invalid.

      Re: “And this is the major undertaking that requires massive amounts of capital, capital Tesla is NOT creating through everyday operations. (Pardon me for ignoring your “dealer network” argument for the moment–especially since they don’t really have a “dealer network” per se.)
      Yet again I acknowledged the high startup costs and again didn’t argue that they will continue–in the short term. Meanwhile, with $2B revenue from all sources last year and relatively low overall losses (meaning amounts not covered by revenue) I don’t think they’re hurting all that badly. The assorted deals with Panasonic, Sanyo, whomever (even of some of those aren’t 100% confirmed) will help absorb some of the cost of building that Gigafactory. Again, once built and in operation, revenue goes up meaning fewer losses.

      Re: “First, Ford DID hock the Blue Oval. Second, Ford is NOT looking for $12 billion in cash. They are looking to EXPAND their current lines of credit by $1.3 Billion.”
      I DID say they put the Blue Oval on the line, so you’re not correcting me. Secondly, when’s the last time you looked? I just saw the article TODAY. I’m willing to correct that if you can show me the link. The TTAC link is: http://www.thetruthaboutcars.com/2014/02/ford-seeks-12-billion-credit-line-expansion/ A credit line expansion is STILL legally a loan, even if it isn’t in cash. I could get a second-mortgage on my house which would be essentially the same thing as long as I didn’t tap the whole amount.

      Oh, and I live only about 4 miles from where one of those Daimler-Chrysler plants USED to stand. It’s a lot of flat ground with most of the existing rail switchyard still in place and some very brand-new buildings close to the college–that now owns all that land. My info is a lot more current that you want to imagine.

      • 0 avatar

        Again bit of well intended advice, “discussing” anything with ruggles is a pointless exercise. He habitually lies for any reason at all (think car dealer), but otoh you’ll be restricted by a sense of ethics. Any earnest dialog on your part will be wasted, and all you get back are cheap tricks.

        • 0 avatar
          Vulpine

          Foxes are known for getting around “cheap tricks”, agenthex.

          • 0 avatar

            Let me try to explain with an example dialog:

            R: my 30 years of experience in math proclaims 2+2=22
            V: hey that’s not how math works, 2+2=4…does proof,e tc….
            R: like I said, 2+2=2, did you google that against my professional insight?
            V: wtf. you’re a liar and that’s still wrong, 2+2 can’t be 2… explains…
            R: haha, you said “math works”, what’s a “math works” anyway? you probably believe 2+2=5, let me write that down to troll you with later.
            V: omg this guy has no sense of shame nor self-respect whatsoever
            R: in your opinion! let me know where you work if you wanna hear my professional opinion or you’re a coward

            And so on.

            That’s basically his whole end game, and you can never “win” since he can’t be shamed into stopping.

            Consider why he usually posts on the main trunk instead of using the reply button properly: so his posts will fwd to people who sub to the main trunk only, but your replies won’t. That’s the kind of person he is inside.

      • 0 avatar

        RE: “Ruggles, by your own words I quoted, you IMPLIED a total inability to reduce overhead, clarifying now only emphasizes my argument that they could reduce costs once the initial startup was completed.”

        IF they make it that far. Tesla’s challenge is the short term. From another TTAC discussion:

        “Auto industry success is a marathon, not a sprint … and at current volumes, Tesla is barely walking.”

        In the case of Tesla, start up is many years. The case is made much better than I by Ed Niedermeyer in his most excellent post. I recommend you read it to get your feet back on the ground. He cites issues I haven’t mentioned.

        Expanding a credit line by $1.3 billion isn’t taking out a new $12 billion loan.

        It doesn’t make any difference where you live. Your assertion about auto plants was dated. Capacity has been expanding in the U.S. since the reorganization of the auto industry and the resurgent economy. We’ve gone from roughly a 10 million SAAR to 16 million SAAR. After the many closings and divestitures things have reversed dramatically. Your plant closed in 2008. Check your original assertion.

    • 0 avatar

      RE: “Those other brands are currently shutting down and even divesting themselves of unused plants (a potential mistake by Daimler Chrysler considering Fiat/Chrysler now has need of more assembly area for trucks).”

      Note your use of the word “CURRENTLY.” Currently is 2014. 2008 is NOT current.

      • 0 avatar
        Vulpine

        “Note your use of the word “CURRENTLY.” Currently is 2014. 2008 is NOT current.”

        2013/2014 IS current. Look at Ford, GM and yes, even Fiat as they close plants around the world. GM is leaving Australia. Ford is leaving Australia. GM is being forced to idle or seriously cut back production in Europe. Ford is cutting back production in Europe–AS WELL as divesting themselves of brands over the last several years. Only in the US are Ford and GM seeing any real growth–well, and China. If anyone, it seems Fiat/Chrysler is the only brand that’s seeing true growth in some areas but even they are admittedly weak in others, so far.

    • 0 avatar

      RE: “Ford is now looking for a $12B infusion of cash (loan) due to its own dodging of Federal loans which might have saved them from putting even the Blue Oval itself on the line.”

      Perhaps it is a “cheap trick” to point out that Ford is NOT looking for a $12 billion loan. You can look at your entire sentence construction and decide if you might have stated things more clearly. Perhaps it is a “cheap trick” to also point out that Ford did NOT “dodge” Federal loans. And if you somehow meant that Ford DID hock the Blue Oval, I DID miss pulling that out of the other gibberish. Of course they did. It wasn’t because they “dodged” Federal loans.

      Ford went to Capital Hill with Chrysler and GM to plead for their competitors to be supported, bailed out, or whatever term you want to use. GM and Chrysler were ultimately “bridged loaned” by the Bush 43 admin. to the next administration which then provided the DIP financing for C11 BK restructuring. Ford received $5.9 BILLION through a different channel. Ford had already hocked the Blue Oval BEFORE the $5.9 BILLION loan through the DOE. So your comment is full of inaccuracies.

      • 0 avatar
        Vulpine

        Yes it is, because the article I linked specifically stated that Ford is going for a 12 BILLION line of credit. I can’t help it that you want to play the semantics game by pointing out that they’re losing an older one that covered most of that amount.

  • avatar

    RE: “Auto industry success is a marathon, not a sprint … and at current volumes, Tesla is barely walking.” from the Bloomberg piece


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