S&P Delivers Junk Status On Tesla

I'm going to go with ignorant.

No...this is not the same thing as Apple, Compaq or the others. This is a test of a whole new kind of product and in need of a whole new kind of distribution and sales. The whole story by S&P explains this. The whole story explains the product variety issues and the debt issues and distribution issues and competition issues. Especially the competition. They explain how many high end manufacturers are developing their own electric cars and have in place huge sales and dealership service networks...all of which could snuff out Tesla.

@TrailerTrash "at a similar juncture in their corporate history." Did you suffer a reading comprehension failure?

"Virtually any capital intensive technology company, think Apple, Compaq, Intel or even Microsoft, would have garnered a similar rating had they raised debt at a similar juncture in their corporate history." Tesla isn't a tech company. It makes cars. Automaking is a mature, old school manufacturing business with the modest margins that being mature and old school implies. The dumb money has been bamboozled into believing that Tesla is some sort of tech business, when it doesn't even come close. The margins will never be that high; they can't be.

@Pch101 "Automaking is a mature, old school manufacturing business with the modest margins" So is the computer hardware business in which HP/Compaq and Apple compete.

@jmo As industries mature, margins get compressed. Successful tech companies tend to have high margins because their costs are skewed toward fixed costs, which allows a successful tech venture to effectively print money once they hit a certain threshold. Tesla doesn't have any of that. It loses money now, it's too small to scale, and it competes in a field in which profit margins are often mediocre at best. It's not a tech company on the leading edge of some sector with a cost structure to match.

@Pch101 " As industries mature, margins get compressed." The cell phone industry is very mature yet Apple's phone margins are still phenomenal.

@Pch101 Apple is essentially a luxury good. It has a brand that allows it to overcharge for its products. Most companies can't be like Apple, by definition. It's completely unreasonable to expect every business to perform like that; it is the exception, not the rule.

@Pch101 "Apple is essentially a luxury good." So is Tesla. "Most companies can’t be like Apple, by definition." Tesla can, IMHO.

@Pch101 The greatest cost of car production is the cost of the parts. Increasing volumes can reduce those costs to a point, but they are made of commodity goods that have to be paid for, regardless, so parts prices can only be cut so much. A lot of the cost of something such as an iPod or an iPhone is in the R&D. The cost of making the item itself is not that high compared to the price for which it can be sold. Once Apple hits a certain volume threshold, the rest of the sales that it produces are like printing money. That's the business implication of having a cost structure that is skewed toward fixed costs. Tesla doesn't make money and it doesn't scale. No comparison. It can't get to the printing money stage because the volumes are doomed to be too low and the parts costs are always going to be significant. Musk must be betting on battery prices falling, which will help, but that can only go so far.

@TrailerTrash Trailer - just because S&P says something (or for that matter, Goldman or Merrill or me) doesn't make it correct -- none of us are the burning bush...but there is a real difference between a qualified and thoughtul opinion and outright B-S. Bending metal (or in the case of Tesla aluminum) is not high tech, with this point I agree. Changing the energy storage and propulsive systems is paradigm changing. Most people don't understand that Tesla is massive vertically integrated and has built a substantial intellectual property moat around its business -- this contrasts with Fisker which purchased (outsourced) much of its technology (R&D) -- it's battery system, for example, were supplied by Quantum Technologies. Tesla's powertrain has dramatically few parts count combined to an internal combustion system (ICE) with transmission. Hybrids compare even less favorably because they have both electric/battery and ICE systems. With production scale and assuming Musk is right about battery production costs, he should have a structural margin advantage. Going back to the early days in tech, think the 1980s, few people even understood what we would do with Personal Computers...Intel had to spend hundreds of millions on a semiconductor fab to produce microprocessors...for computers that had almost no application software. Sounds like an incredibly stupid way to piss away half a billion dollars...yet today Gordon Moore (of Moore's Law fame) is widely acknowledged as one of the great visionary geniuses of a generation. Intel investors seem to have done OK too. Probably more to the point (pun intended), Steve Jobs reinvented Apple and made it the world's most valuable company with "me too products" ... MPEG players (iPods), laptops (MacBooks) and cellphones (iPhone) ... sold into a highly competitive market characterized by entrenched and powerful competition. I personally think that people underestimate the economic value of a great idea that can be metastasized across a worldwide market. Tesla may not succeed, but those who casually and superficially dismiss the power of a disruptive idea remind me of the quote attributed to the Charles Duell (Commission of the US patent office circa 1900) when he (supposedly) quipped "that everything can be be invented has been invented."

@Pch101 This. Tesla is also heavily vertically integrated. Smart move for quality, but a bad move for cost. Especially being in California. When the Tesla recruiter told me their supply base was around 60 companies, I couldn't believe it. Noble, but stupid.

I have great luck with TTM. It is part of by bet on the developing world. JLR is a sideshow. If the press turns on Tesla or Musk is caught with a hooker, driving drunk, etc its gonna be tough. My take on Tesla is it is built on the personality/strength of one person, a little too one dimensional for me. Imagine Berkshire Hathaway price if something happened to Buffett.

If they can ever get the damn X out the door, it's gonna be huge. They've gotten this far selling nothing but a friggin sedan during the golden age of the CUV.

So I am a stock market idiot, regrettably I simply never learned and never had enough money to gamble on something I knew nothing about. So I googled today's stock price of Tesla and it says its at $206. And you bought it at $28? So you have the potential to make that much of a return?? Wow. Impressed. Of course it depends on how much stock you own but I think that's a hell of a return no matter what. Now I understand how you own so many expensive cars. I would guess buying now is not even worth it though.