By on August 13, 2015

 

Tesla filed Thursday to sell nearly $500 million in shares of its company to raise capital and cover investments the electric carmaker plans to make in the future.

According to the filing with the U.S. Securities and Exchange Commission, the proceeds will go toward the company’s planned investments in the Model 3, Supercharger network and its Gigafactory battery plant in Nevada.

By the book, the stock sale is a short-term pain for long-term gain. Exposing Tesla further to the market carries certain risk, especially considering Tesla’s price growth and relative upside-down balance sheet, but if historical stock prices are any indication, it’ll be a cash cow. Elon Musk asking to buy $20 million in his own stock has pumped up the prices too beyond any distillation worries.

But don’t be mistaken: the second stock sale isn’t really about the cars.

Tesla’s long-term plans certainly aren’t to sell cars at a $4,000 loss per vehicle. And if you had asked Ford or General Motors 120 years ago if they’d rather be in the consumer vehicle business or the consumer energy business, Exxon and Chevron consistently rank in Forbes most profitable businesses — Ford and GM do not.

A spokesman for Tesla said their only comment on the stock sale is what is included in the prospectus. Specifically outlined in the prospectus is capital expenditures for Tesla including the Model 3, Supercharger network, service, stores — and its Gigafactory. So it’s clear that cars factor into the short-term future for Tesla.

But churning a profit by 2020 may include more than just selling cars at a loss and so far, Tesla has been run like an idea factory and marketing agencynot a car business.

If Musk can convince the world that harvesting and storing your own power is a good idea, would Tesla get out of the car business entirely? Or is this an automotive dream Elon is willing to captain to the bottom of the sea should Tesla cars continue to anchor the company with thousands of dollars in losses per unit for the foreseeable future?

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23 Comments on “Elon Musk’s $500 Million Moonshot, and it’s Not About Cars...”


  • avatar
    bunkie

    It think that the electric car is the lure and energy management is the ultimate goal.

    Tesla’s home batteries are a very compelling product. They aren’t that expensive and, in many cases, they are reasonable alternatives to home generators. Moreover, as this market develops, incentives to consume power at off-peak times will increase. The advantages of this are huge: reduced need for new generation capability, reduced load on the grid (which will lower transmission costs).

    We simply have no choice but to convert the existing grid to a better-managed resource. Most people have absolutely no idea how wasteful the current situation is. In order to respond to peak demands, extra generation capability is kept on-line. Plant startup takes hours, in some cases, and all that extra power gets sunk into condensers which, essentially, wastes it. Putting that power into home-based batteries makes a lot of sense.

    • 0 avatar
      redmondjp

      I think you are a bit misinformed – no extra power is ‘sunk’ into condensers (capacitors). The power generated = power consumed. The grid can’t store energy. Capacitors on the alternating-current grid are used for power factor correction.

      Now using excess off-peak power to charge batteries, or to pump water uphill back behind the dam (pumped storage), or to freeze a block of ice that is used the next day for building cooling – these are all excellent ideas.

      • 0 avatar
        bunkie

        Just because something is called a condenser, it doesn’t mean that it’s a capacitor. In this context, it’s a load designed to consume power.

        I was appalled when I first learned of this but, given a little bit of time and some education about the grid, it makes sense. They are necessary because future load calculations are something of a guess. The big crime in power generation is to have insufficient capacity on-line when demand spikes because no one likes outages. From a customer-satisfaction perspective, it’s better to waste power so that peaks can be handled.

        • 0 avatar
          PandaBear

          No one likes outages, but most people are not willing to pay enough to avoid them.

          Smart appliance and smart controllers for dumb appliance can delay peak consumption by a lot for a very low price. A $30 controller that cutoff dish washer, electric dryer, throttle air conditioning (or stagger their start up after a power failure) or precool a place during off peak, and of course suspending EV charging are all great ways to cut back peak usage for very low cost.

    • 0 avatar
      wmba

      “Putting that power into home-based batteries makes a lot of sense.”

      Batteries which, 99.9% of the time, are already full and useless for load management purposes.

      For charging electric cars en masse, if that glorious day ever dawns, well sure you need to manage the load, and that may cheese off people who find that their prescribed charging period doesn’t match their lifestyle.

      Our local utility, which I used to work for, in common with most others, has plant that can almost instantaneously cope with sudden demand or decline. Hydro and gas turbine plus wind as well as base load plant. The utility is also interconnected with the grid in eastern north America, spreading the variation in load over more customers if required.

      By the same reasoning that commenters have when criticizing engine design, i.e. the engineers at automakers are obviously stunned, apparently we are supposed to believe utilty engineers are as well. The thought of designing and operating a system being done by armchair theorists is frightening. They somehow assume they were first to think of something. In this case, the theory of running an electrical system was going on in the 1890s.

      Here’s a Google ebook for an Engineering periodical from 1892:

      https://books.google.ca/books?id=tJIiAQAAMAAJ&dq=%22The+Engineer%22+london+vol+73+ebook&source=gbs_navlinks_s&hl=en

      Tesla merely digs up existing ideas and products not grandly promoted by existing suppliers, and shines their lighthouse beacon on them. Ergo, to the average man Tesla invented home storage batteries, because they never heard of them before. Or reinvented the 1913 Baker Electric with better styling, control system and a flash iPad. Home storage batteries a compelling product? Don’t be daft.

      The base Tesla storage battery is 3 kWh. What miracles of staying power will that provide? The average home uses a good 15 kWh a day. If you live where storms kill the electrical system for day(s), you buy a Honda generator. Snow covers the solar panels, so now you need to heat hot water.

      Of course, you may praise Musk to the skies if you have no technical background and/or are unread. I prefer to think of him as a giant circus huckster, swaying the crowd by introducing them to ideas they never had before due to their low intellectual curiosity.

      • 0 avatar
        bunkie

        The reason that batteries are, in your words, “useless for load management purposes” has to do with the lack of in-home management of their capacity. Charge at night, consume from the batteries during the day. That sort of capability has been missing until now.

        And, I’ll give it to you that grid management has gotten better. But the grid must still be sized to handle peak demand. Home (and industrial) storage on a large scale reduces the size of those peaks.

        “Of course, you may praise Musk to the skies if you have no technical background and/or are unread. I prefer to think of him as a giant circus huckster, swaying the crowd by introducing them to ideas they never had before due to their low intellectual curiosity.”

        I am neither. You have an opinion, which I respect. And, perhaps, I am an optimist. But Musk has proven that he can do amazing things. The Falcon 9 proves that beyond a doubt.

      • 0 avatar
        mcs

        The storage capacity of the power wall is 7kWh and 10kWh. The max power is 3.3kW.

    • 0 avatar
      stuki

      While I hear what you are saying, I’m starting to think poor Elon needs to get out more. Spending too much time in the echo chamber that is Silicon Valley, could easily lead one to believe that everyone in the world aspires to little more than using and consuming little electronic devices for which storing energy in home batteries for off peak hours may make all the sense in the world.

      But for those who fancy driving ATVs and shooting guns, doing burnouts in diesel trucks and fighting wars, which when combined adds up to a lot more of humanity, and of car buying humanity as well, I just don’t see it.

  • avatar
    Ihatejalops

    Death watch a coming? Methinks it’s needed.

  • avatar
    tylanner

    Other than the powerplant, are Tesla cars really that revolutionary?

    They are really just the most coherent case ever against the IC engine. A proof of concept that is shaking the industry.

    Large, cheap, efficient batteries are a case against base load power from Fossil Fuel power plants. I mean it wasn’t long ago that Flywheel energy storage systems were thought to be the best long term option.

    The breadth and scope of his dream is unequivocally towards goodness and yes, I think it includes a good bit more than just transportation.

  • avatar
    APaGttH

    No, no, no, the B&B roasted me for suggesting that Tesla’s end game is the next GE because building energy solutions that viably take people off the grid and disrupt traditional energy distribution.

    The market is ripe for disruption – 3 Kw today, but if you think that it will that way 5 years from now, I have some ocean front property in Arizona I would love to talk to you about.

  • avatar
    eventualhorizon

    I’m not sure why TTAC keeps on repeating the ‘fact’ that Tesla is losing 4k per car. Tesla is spending money on growth and new models. They are losing money the way that Amazon has lost money for years… by spending possible profits growing the business.

    From the Tesla 2q stockholder newsletter:”Q2 Automotive gross margin excluding ZEV credits was 23.9% on a non-GAAP basis and 22.9% on a GAAP basis. Non-GAAP gross margin was about 100 basis points below guidance, primarily due to higher manufacturing and part costs related to the ramp of our small drive unit line and the deferral of revenue recognition for certain Autopilot features which are now scheduled for release later this year.” From what I can tell the auto industry average gross margin is around 8%. GM’s for the past quarter was 10.8%. 23% gross margin is pretty good.

    In fact, if you take out the 19% of revenue that Tesla is spending on R & D, they are pretty close to break even. So, it seems that they are making money on each car sold but spending more than they are making to grow the business. Which is partly why the stock price is so high. Investors believe that the future Tesla will be worth considerably more than the current Tesla.

    • 0 avatar
      Pch101

      Er, R&D in the car business isn’t a luxury or an option. It’s as necessary as paying the light bill or meeting payroll.

      Tesla doesn’t spend enough on R&D, so the losses are actually understated. I don’t blame the company for managing its cash, but that underinvestment explains all of the delayed launches and everything else.

    • 0 avatar
      SCE to AUX

      “I’m not sure why TTAC keeps on repeating the ‘fact’ that Tesla is losing 4k per car.”

      Because it’s so convenient to divide losses by volume and produce a quotient of “$4000/car”, when the car itself is likely profitable.

      For perspective, from 2005-Q1/2009, GM lost $88 billion. This amounted to $5500/car then, or about $6400 today. But they had a mountain of crushing debt which led to their bankruptcy.

      To Pch’s point, Tesla currently has 1643 job openings worldwide. One reason they’re not spending fast enough is they can’t find people fast enough.

      I say cudos to Tesla for diversifying a bit.

      But as the old cartoons so vividly portrayed, Tesla is trying to outrun the flaming trail that is following it. If they can really launch the Model X and Model 3 – with volume – then maybe they can turn the corner on their cash flow. I can see why Musk says it won’t happen unto 2020. But as Pch also points out, there needs to be a Model S replacement in the works right now, too.

      • 0 avatar
        Pch101

        The losses this year are actually closer to $12k per car. And they would be larger if Tesla would stay on schedule for designing new cars.

        I keep explaining that gross margins aren’t profit, that R&D is not just a nice thing to have when one feels like having it, and that Tesla’s gross margins are not comparable to the rest of the auto industry due to its direct sales model, but people refuse to understand this.

        As I also keep noting, the media should be asking what has been spent on the Model S replacement model. No, that isn’t an option, either, but I have yet to see Tesla mention even a whisper about this even though it matters.

        • 0 avatar
          APaGttH

          You’re spot on. FCAs stunning month over month growth is going to come to a crashing stop as the lack of R&D investment catches up with them in the next couple of years.

          Automakers can’t sit still – none of them. Otherwise you end up W-Bodies, Calibers, Avengers, and scratching your head on how anyone could buy a Dodge Journey or Toyota Yaris.

          If innovation wasn’t required, Scion would still be moving iron at last century levels.

          • 0 avatar
            Pch101

            I wouldn’t compare Chrysler delaying something by a few months to Tesla’s failure to have a Model S replacement model of any kind in the pipeline.

            At the very least, the car is going to need a facelift in a few years if it is to be competitive, and a new platform should be in the works in time for when the current one is perhaps 10-12 years old. That work all requires considerable time and money, so it can’t be left until the last minute.

    • 0 avatar
      APaGttH

      …Tesla is spending money on growth and new models…

      What, and Toyota doesn’t spend money on growth and new models?

      Or Honda?

      Or Ford?

      Or General Motors?

      Or Nissan?

      You mean the Prius just poof appeared, along with the massive investment of building awareness, and a brand.

      You mean the Leaf just fell out of the sky for Nissan?

      GM just dusted off an EV-1, that they apparently R&D for free, and slapped a Volt badge on it?

      Toyota hydrogen fuel cell vehicles didn’t cost anything?

      R&D and expansion investment is a cornerstone of any automotive company.

      Nissan in the 90s would have been bankrupt by US accounting laws – and their products of the era and roadmap reflected it.

      GM soldiered on with ancient platforms, forcing the W-Body and U-Body to boldly go where W-Bodies and U-Bodies should have never, ever gone.

      How important is expansion and R&D? Right before the economic meltdown Ford bet the entire farm, literally, on expansion and R&D.

      The fact that TSLA can’t build a Model S for profit is increasingly troublesome. Objective people were already saying the balance sheet was in trouble two quarters ago, and this funding is no shock. Dilution of stock is usually never a good thing, it certainly isn’t a good thing when your cash burn is $200 to $400 million a quarter.

      Tesla’s road is going to get a lot harder when the Model 3 gets here because a growing list of makers are going to beat them to the market with similar priced offerings – and if they can’t make a luxury car that can easily top $100K profitable per unit, how on earth will they make a $35K “peoples car” profitable.

      You can’t sell a 1/2 million Model 3s a year at a $4,000 unit loss. Heck, you can’t sell a 1/2 million Model 3s a year at a $500 unit loss. Ask GM, Nissan, or Chrysler how that worked out.

      The answer for Tesla’s survival isn’t in cars – and I agree with the assessment it lays elsewhere.

      I think Musk is a huckster, a sleazy used car salesman in the metaphorical sense – but he isn’t stupid.

  • avatar
    chuckrs

    After spending 10 days (in SE New England) without power after the tail end of a very middling hurricane, I bought a generator. Without one I have no water or heat. No lights don’t bother me, but no water does. Adding a battery pack probably would be an attractive option for many non-city/suburb dwellers like me. Charge the battery off the generator when power is out and off the grid off-peak when power is on. Even quiet generators aren’t quiet, so not running continuously is a nice option. Sizing could be a problem – with a deep well pump, I need 7.5 to 8 kVA counting startup surge. Wonder if you could use capacitors to give a short term boost – an electric version of a squirt of nitrous?

  • avatar
    baggins

    This paragraph doenst make sense, at all. I dont think the writer understands what Tesla is doing here, or how a stock offering works.

    “By the book, the stock sale is a short-term pain for long-term gain. Exposing Tesla further to the market carries certain risk, especially considering Tesla’s price growth and relative upside-down balance sheet, but if historical stock prices are any indication, it’ll be a cash cow. Elon Musk asking to buy $20 million in his own stock has pumped up the prices too beyond any distillation worries.”

  • avatar
    redav

    I thought it was obvious that they want to be a battery company when they opened up their patents for anyone to use, and Tesla would be more than happy to provide the batteries.

    Also, repeating the nonsense of “losing $4k per car sold” really diminishes credibility. Yeah, I get that it’s a soundbite & filler, but it still reflects badly on the overall article.

  • avatar
    orenwolf

    I think Tesla (and Mr. Musk) have been pretty straightforward from the start on their plans.

    Clearly, R&D is expensive, especially when you use one market’s profits to fund R&D or development of another. Look at the *massive years* of losses Microsoft took on making Xbox a household name. If Xbox had been it’s own company, it would have gone bankrupt several times over. Windows sales paid for that development.

    For Tesla, Elon has always said energy independence was his goal. he felt that no one was innovating in off-grid power options, or in true electric cars, and he felt both would be needed to reach independence. And so, here’s Tesla trying to do both.

    It’s not surprising. he also noted that no new Rocket engine designs had been created in literally decades before SpaceX (hence the massive buying of russian rocket engines by ULA to this day), and he flet that human spaceflight wasn’t a priority anymore either. So, he created SpaceX to be a rocket company, with the goal of human spaceflight. And he uses launches to fund a massive R&D effort towards human spaceflight.

    For Tesla, “selling cars at a loss” is a lot like the Xbox problem – a TON of money is needed to build infrastructure, on Research and Development, and production. I can’t imagine anyone scaling a car buisiness of any kind based on ramp-up sales – you need more money than you can generate in the early years. Battery tech has been lagging in the US, so you create that infrastructure, realizing that in the long run all of these investments will support those two goals: electric cars and energy independence.

    Of course they lose money on every vehicle sold. But that’s because the vehicles, while an end in and of themselves, are also a revenue generation device for all the other bits that are needed to fully realize the idea of volume electric cars, and personal energy independence for homeowners.

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