By on November 9, 2010

California EV maker Tesla has reported its Q3 results, and they’re a sizable helping of not great. But before we dive into the messy reality, let’s check in with CEO Elon Musk for an unreasonably rosy take on the loss:

We are very pleased to report steady top-line growth and significant growth in gross margin, driven by the continued improvement in Roadster orders and our growing powertrain business. Roadster orders in this quarter hit a new high since the third quarter of 2008, having increased over 15% from last quarter. While some of this is due to seasonal effects associated with selling a convertible during the summer months, we are pleased with the global expansion of the Roadster business and the continued validation of Tesla’s technology leadership position evidenced by our new and expanding strategic relationships

Translation: Toyota is investing in us… now get out of here with your awkward questions. Unfortunately for Mr Musk, it isn’t quite that simple…

What Musk leaves out is, well, there’s a lot he leaves out. For one thing, Tesla managed to lose only $4.6m in Q3 of 2009, so these latest results are a disaster when compared year-over-year. And the picture is even worse for year-to-date results: Tesla has lost $103m so far this year, over three times the $31.5m loss accrued in the first three quarters of last year. And even using Musk’s generous comparison to Q2 2010, Tesla’s operating loss actually widened (on massively increasing operating expenses), and was offset only by an increase in “other income.” And no surprise: automotive sales revenue was nearly half its Q3 2009 level.

UPDATE: Elon Musk tells the San Jose Mercury News that

attaining quarterly profitability isn’t a goal… We’re very focused on long-term profitability.

So… mission accomplished. Except that making profit on a blue-sky luxury electric sedan is typically a long-term (to say nothing of expensive) proposition. And the Model S won’t be the only green luxury game in town come 2012. But then, that kind of negative thinking has a history of not bothering Musk. If and when it starts affecting Tesla’s stockholders, things could get ugly.

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24 Comments on “Tesla Lost $34.9m In Q3, Dropped $103m Year-To-Date...”


  • avatar
    gslippy

    Development of the Model S is killing Tesla’s bottom line.  This is akin to speeding so you get to the gas station sooner when you’re low on fuel.
     
    I don’t understand how their G&A expenses can be growing so much, when sales aren’t rising accordingly.
     
    I’ve been a Tesla fan so far (divisive topic), but these GM-esque numbers are scary.  Tesla is starting to look like a cheap buy for someone who wants some technology and a few good engineers.

    • 0 avatar
      SVX pearlie

      Development of any car is expensive, and the closer you get to mass production, the more money you burn, and the faster you burn it.

      This is why running a car company is so difficult. It’s a huge gamble that you can recover massive tooling and other costs.

    • 0 avatar
      Daanii2

      I don’t understand how their G&A expenses can be growing so much, when sales aren’t rising accordingly.

      That’s very common in companies that rely on government largesse to survive. When you need to survive on what you earn, you are careful with your spending. When you get lots of free money, you get lazy and spend.

      That happens all the time here in Silicon Valley. Especially in the boom times, you often see startups that go public or do a big later series private placement go on a spending spree and self destruct.

      Tesla is starting to look like a cheap buy for someone who wants some technology and a few good engineers.

      Tesla’s way too expensive to buy. Could Toyota or anyone else be that foolish? I hope not.

  • avatar
    holydonut

    I think you should avoid reporting on financial news since it’s obvious you cannot be impartial about it.  You want them to fail therefore you spit your negativity and decisive snark over a quarterly earnings report.
     
    Most analysts don’t predict Tesla to turn op-profit until late 2012 (or later), and they won’t have bottom line net income in the black until a few more quarters after that.
     
    Go find the JP Morgan (they underwrote the IPO), Deutsche Bank, or whatever report from a company that is somewhat capable of fundamental analysis. I guarantee none of them are projecting positive earnings until sometime in the future.
     
    Morgan Stanley had estimated Q3 2010 to have a loss per share of $0.45.  Tesla’s actuals were $0.38 per share loss.  Your brash “there’s no doubt that Tesla’s in trouble” statement could be true. However, there is no evidence in the the quarterly earnings report that allows us to draw a conclusion to support that claim.
     
    This is why people accuse TTAC of being quick to pass negative judgment instead of taking some effort  to discover truths. If you cannot take an impartial attempt at discovering the truth, then it’s probably better for you to remain mute. Your bias made it impossible for you to seek out a benchmark by which to measure the actual results versus the original consensus expectations.

     
    For clarification – I don’t own any TSLA stock, and I don’t work for the company. I believe there is a rhyme and reason to what they’re doing, but I’d rather commit my money elsewhere to firms that are more attractive (and less prone to overreaction due to alleged pundits spewing their negativity).

    • 0 avatar
      imag

      Well put. I

    • 0 avatar
      John Horner

      “Go find the JP Morgan (they underwrote the IPO), Deutsche Bank, or whatever report from a company that is somewhat capable of fundamental analysis.”
      Having been part of a management team which took a company public I can tell you not to put much stock in what the “analysts” have to say about a business, particularly not those who work for the underwriters or the syndicate which marketed the stock in the first place. People seem to forget that all of these people are called “sell side” for a reason: They are the sales machine which has as it’s primary purpose moving the stock.
       

    • 0 avatar
      Daanii2

      I agree with John Horner. The views of “analysts” who report on companies are worthless. Edward Niedermeyer does a lot better. I think his analysis is well reasoned and perceptive.

    • 0 avatar

      holydonut: I do not want Tesla to fail. Really. I’m just taking a look at the numbers. And I know for fact that investment firms looking at Tesla (and companies like it) struggle to build models for their future. There’s no precedent for what Tesla is trying to do. And since the DOE has blessed Tesla with loans, why wouldn’t underwriters go along with the spiel?
      As I see it, betting on Tesla is a gamble that either A) petroleum gets volatile again, B) the luxury market will survive that volatility, and C) Tesla can really compete on a mass-production(ish) level. The wild card D) is that Toyota just buys the company outright. Otherwise, those long-term operating profits are a mirage… on the other side of a wide desert of development costs.
      Of course you are free to disagree… and hey, you’ve got until 2012 to convince me that Musk’s firm is going to take over the world. Of course, by then Elon will already be deflecting attention to the next car, to be sold at half the price, at twice the volume, etcetera…

    • 0 avatar
      holydonut

      The skeptics need to clarify something for me.  Other than the typical cynicism that permeates this site, I fail to understand how you have decided to discredit business analysis (of the next quarter) in order to accuse Tesla of corruption and mismanagement idiocy.
       
      Three months ago, the bottom-up forecast of the Tesla business model conducted by Wall Street banks, Bay Area tech investors, and even banks in Japan, China, and the EU all had similar consensus that there was no way Tesla could show profit in 2010 Q3.
       
      This was explained by the “liar banks” because Tesla was ramping up R&D and their infrastructure to support volume car sales with their upcoming Model S.  Everyone knows the roadster is not viable on its own – the volume and margin don’t cover expenses.  Tesla even has to cover depreciation on assets used to build the fully-allocated-money-losing roadster.
       
      Are the skeptics saying that each and every one of these banks colluded to create a fake estimate where they all published that Tesla would lose money in 2010 Q3?  Do the skeptics believe that Tesla could have been profitable in 2010 Q3 if they had done something differently or had a different management team?  Are you saying that this loss was just a safety net provided by smary bankers?
       
      Sure those banks are trying to get the peon-masses to buy into the stock.  However you guys seem to ignore the massive grey area that exists.  I think Tesla is worth about $15 to $17 a share… and that was after analyzing some of those “fundamental analysis” reports and realizing how much fluff was baked into 2013 and beyond.  What is worse is that the risk of failure is so high that the potential upside of the stock isn’t worth the risk to buy shares at today’s prices.
       
      But to declare the consensus Q3 2010 Forecast as total garbage is a bit far fetched… even by TTAC standards of conspiracy theory.  The banks had no reason to expect a 2010 Q3 loss unless it was really in the forecast based on their knowledge at the time of their estimate.

    • 0 avatar
      holydonut

      @Edward – I put in my own comment which bank underwrote the IPO because I knew you guys would point that out for me if i didn’t mention it.  But the other banks in consensus we also in agreement that the firm cannot be profitable until 2012 or 2013.
       
      Tesla’s risk is that they aren’t making money right now, and nobody is sure where they’re headed (well, some readers here seem to have a crystal ball). 

      Those who support Tesla believe they’ll be making money 7 to 10 quarters from now.  I agree the banks’ conflict of interest is at play here. All the banks are in this camp. No bank is picking Tesla’s profits to begin out in 2014… because Tesla would be bankrupt by then. So all these liar banks think it’ll happen (if it does happen) by the end of 2013. This is why I’m not a fan of Tesla’s inflated stock price as it trades today.

      Everyone against Tesla thinks they don’t have a hope in hell of selling enough cars at their lofty margin to attain profitability. These valuation models are easy… they trend towards zero and show quarter after quarter of loss until Tesla goes out of business. If you’re in this camp you’re the ones short-calling Tesla stock (or long put) set around Q4 2012 since that’s when the peon-idiots who bought and held Tesla will start dumping shares as the firm misses expectations.
       
      Simply, the Q3 actual results (that beat consensus expectations) don’t provide information either way regarding the success/failure of the business model.  This pretty much explains why the needle didn’t move much on the stock price. By all accounts Tesla is both on track for success while simultaneously on track for failure since neither camp expected the company to make money in Q3.
       
      If you “Really.” believe they had a shot then you’d also really know that they had no way of posting profits until much later down the road.  You can’t suddenly flip the script and expect Tesla to be profitable in Q3 this year.  Startups with minimal overhead struggle to gain profitability; the hurdles facing auto companies are even more enormous.

    • 0 avatar

      Simply, the Q3 actual results (that beat consensus expectations) don’t provide information either way regarding the success/failure of the business model.

      Agreed. Tesla’s future is as murky as ever. But Q3 Roadster sale revenue was nearly half of the Q3 2009 level… whether you believe the Model S can rescue the company or not, that is not a great sign. You do not have to reduce sales of an existing product in order to develop a new one… if interest in the Roadster is down that far in a car market that’s growing by 10%-ish, I’m sorry, but that’s not an encouraging indicator.
       

    • 0 avatar
      John Horner

      Back in the pre-Netscape IPO era, the rule of thumb for taking a company public was that it had to have demonstrated three solid profitable quarters and have visibility which gave confidence in the expected level of sales and profitability for at least the two quarters after the intended IPO.
      The Netscape IPO was a watershed event wherein all those rules went out the window and the new thought was to simply push any IPO onto the market which could be successfully hyped thanks to “Buzzzzz!” Said new way of doing business led directly to the Dot Bomb era. Guess what people, the investment bankers made a freaking fortune, in cash, hyping all of those now worthless stocks on to gullible gambler/investors. Trust that gang at your own risk.
      Anytime someone makes an argument for a company based on a reference to the authoritativeness of investment bankers, watch your wallet.
       

  • avatar
    cmdjing

    The problem with relying on the likes of JP Morgan or Deutsche bank for prospectus information is that you have to remember they have a fundamental conflict of interest in the entire arrangement. They make money if you invest, if you don’t, they don’t. They may tell you to sell now and then but remember they have to keep you playing the game for them to earn their megabucks. It’s as simple as that.
    There is a rhyme and reason for Tesla’s valuation, it’s purpose is to part fools of their money so that clever shysters can get rich, well richer. Mark my words, Barring some Enron levels of accounting fraud, Tesla will never be in the black. It’s CEO is a bankrupt multimillionaire who couldn’t keep his own spending in check. How well do you expect anyone is able to control expenses at Tesla and raise revenue when they are playing around with other people’s money?

    • 0 avatar
      holydonut

      Wow, so now we’re debating the validity of fundamental analysis? Maybe next someone is going to question whether it’s better to look at “profit” versus “cash flow” versus “magic beans.”
       
      But for the sake of readers on this site, I hope there is some consideration / respect given to the fact that fundamental analysis (resulting in that 2010 Q3 EPS estimate) is being conducted by very intelligent people with a horde of knowledge.
       
      Companies cannot wave a magic wand and ramp up to build cars… there is an evolution of their cost structure and sales volume.  I am assuming you know that there is an intense capital and overhead requirement you build cars.  Operating profit includes depreciation and amortization plus all the overhead necessary to ramp up the in-house engineering/manufacturing/distribution/marketing/sales/support network for both the roadster and the upcoming Model S.
       
      All these business assumptions come together into a projected outlook.  2010 Q3 EPS should be one of the easier forecast items since it was a near-term estimate.
       
      I agree the calculated cost per share or buy ratings that come out of analysis is often inflated (as you said they want to part fools with their money).  Often times those managers in charge of the analyst lackeys throw in their own fuzzy estimates of long-term volume forecasts and terminal value beyond the fundamental horizon.   So please read your prospectus before committing your money on stocks.
       
      But the 2010 Q3 estimates are much more immediate and valid – and nobody ever estimated profit for Tesla in 2010 Q3.
       
      If you saw a prospectus that projected Tesla profit in 2010 Q3 then that’s definitely a firm that doesn’t know what they are doing.  Take their work and shred it.  If a web blog declares an expectation of Tesla profit in 2010 Q3…

    • 0 avatar
      cmdjing

      You keep repeating the phrase “fundamental analysis” as if it actually had any meaning. It doesn’t. I’ve seen very intelligent people with their vast horde of knowledge make some very very stupid decisions. The problem with market forecasting is that it deals with probabilities. You will never have enough data nor a formula which will get you anywhere near to predicting market movements. However much they would pretend to be scientifically rigorous, they are not. There is always a disclaimer at the end that says past performance is not indicative of future performance and that your mileage may vary. As far as I know, engineers generally don’t have a disclaimer that past incidents of bridges remaining standing is no indication whether or not this new bridge will stand.
       
      What I see when I look at Tesla is a relatively new company trying to claw its way into a tiny niche market filled with entrenched competitors (porche, etc) on the back of massive investments made that present income will never be capable of paying back and whose present strategy seems to be waiting for a rich giant sucker to come along to bail out the initial investors before everyone realizes what a colossal clusterf*ck it is.

    • 0 avatar
      John Horner

      “Wow, so now we’re debating the validity of fundamental analysis?”
      You mistake the work of salespeople for being something other than what it is.
       

  • avatar
    HoldenSSVSE

    The Model S is DoA.  The price started at $50K, then $58K and some of the latest information from Tesla puts the S, if it is ever built at $75K, and that still doesn’t get you a 250 plus mile range and all the options.
     
    Toyota is just waiting to inhale Tesla’s dead body.

  • avatar
    Tstag

    I see Jaguar Land Rover have made half a billion pounds so far this year. That’s a positive news story for TTAC isn’t it? Oh wait what about the Ford angle…. hmmm maybe not so positive for Ford.

  • avatar

    @holydonut: Really, regardless of Ed’s take on the quarter, the question with TSLA as an investment is simple: Can this company mass-produce a car at a price and quality level that makes it sufficiently competitive to sell in profitable quantities — before they run out of cash That’s it. That’s the whole thing. Losses between here and there don’t matter except as they affect the burn.
    Here’s the giveaway: Most of the company’s investors — including the people at the i-banks who took it public — have expertise in Silicon Valley startups, not the auto business. They listen to Musk’s bluster and think he’s going to teach the world some lessons. Those who are more skeptical tend to be those who know that the giant global automakers are not run by morons, and that building a competitive car at a competitive price is extremely difficult even when you have the resources of a company like Ford or Honda, which Tesla (despite its connection to Toyota) does not.

    • 0 avatar
      holydonut

      JP Morgan specializes in startups?  When did this happen?  Daimler brought in JP Morgan to underwrite the sale of Chrysler to Cerberus.  JP Morgan also helped execute numerous deals for Ford and for GM.  I’m not sure if they help the Japanese firms since I never worked for any of them.
       
      Yes, it’s difficult to sell cars.  That’s why there aren’t many companies that are able to do it successfully.  So it’s really easy to poo-poo on everything because it’s very easy to picture failure.  But, the stock wouldn’t be trading at $25 a share unless many felt Tesla had a chance.
       
      TTAC should publish an article on how to profit from Tesla’s demise – because everyone here is so confident that they’ll fail – they might as well make some money with their knowledge.

  • avatar
    cmoibenlepro

    Their operating profits increased, which is a good thing.  Their financial situation improved compared to 2009.

    They had a 34M loss because their Research and Development costs increased by 20 folds.  Please compare apples with apples.  Maybe they could make a profit from this research.

    • 0 avatar
      John Horner

      “Their operating profits increased, which is a good thing”
      Uh, no they didn’t. Read the line “Loss from operations” again. Losses were worse this quarter than last, and dramatically worse this quarter compared to last year’s equivalent time period.
       

  • avatar
    Lokki

    Tesla’s risk is that they aren’t making money right now, and nobody is sure where they’re headed (well, some readers here seem to have a crystal ball). 

    Uhm, I don’t have a crystal ball, but I think I can see the handwriting on the wall:
    1. What Tesla actually has to sell right now:
    a. Isn’t selling that well
    b. Isn’t making much money for them(if any) when it does sell.

    2. Tesla has gotten this far on the basis of a nice juicy (electrical juice?) “loan” from the DOE.
    That won’t last forever and may not even last until the introduction of the Model S
     a. It’s easier to get a first loan than a second one.
    b. The Republicans are in control of the House (where money comes from) and they’re looking for places to cut spending. Second loan from Tesla from them?  I don’t think so.
    c. California to the rescue?  Better ask the State Employees Pension plan ’cause they’re the only ones in the California government with any money.

    3. Even if the Model S makes it to market, how big IS that market anyhow? Electric cars are good as commuter cars…not so much for family transport. Unless you’re carpooling what is the market for an electric family sedan? Oh, and at the cost of a BMW 5 Series at that. 

    4. Even if the Model S makes it to market, and is a success, how much money will Tesla actually make on the car? Enough to sustain the company? Hmmmmmm

    So, although I’ve no crystal ball,  even though the scratched and dirty plastic lenses of my cheap glasses, I don’t think things are looking so good for Tesla.

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