Report: Tesla Losing $4,000 on Each Car, and is Burning Cash Faster

by Aaron Cole

Updated: December 31st, 2020 Published: August 9th, 2015

After Tesla Motors announced last week that it had lost $184 million in the second quarter of this year on lower vehicle deliveries and higher spending on its factory ahead of a new model, analysts say the company could have a bumpier road ahead if it can’t raise cash soon.

According to a Reuters report, Tesla is losing $4,000 on each car it sells, and the company’s ability to raise capital could be severely hampered by its spending now and its inability to create positive cash flow in a luxury market that is extremely favorable.

“A capital raise, given the way they’re burning cash today, given the fact that they have future investment needs, seems very likely at some point,” UBS Securities analyst Colin Langan told Reuters.

Despite favorable press and an extremely effective marketing plan, Tesla has only one profitable quarter in its history and the automaker doesn’t project a cash-positive year until 2020.

Tesla’s stock tumbled more than 10 percent Thursday after the announcement and closed Friday still down around 10 percent from its one-week high.

The story points out that Tesla has had tough times before. In 2012, Tesla CEO Elon Musk steered the company out of a cash crunch and renegotiated a federal loan and sold shares of the company to raise money ahead of the Model S launch.

Musk faces a similar quandary now, ahead of the Model X launch, but with a challenged budget sheet, significantly higher investments in production and more competition in the market.

#Cash #Earnings #ElonMusk #Financial #Tesla

Aaron Cole

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11 of 94 comments

SCE to AUX on Aug 09, 2015

Since Tesla doesn't expect to make money until 2020, let's just rerun the same story in 2016, 2017, 2018, and 2019, with the same predictable comments. Otherwise, I'm not sure why this is news, except that someone took the losses and calculated them on a per-car basis to make it interesting.

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- Master Baiter on Aug 09, 2015
  
  Well, a year from now, Tesla might decide they won't make money until 2025. So the story is likely to change every quarter.
  
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Jimal on Aug 10, 2015

Could it be that the factory direct sales model is a part of the problem here? Retail is expensive when every part of it, including the costs of unsold inventory, sit on your books. I know everyone hates stealer ships, but perhaps this is the case that proves their value...

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- Hreardon on Aug 10, 2015
  
  Yep - this is key to understanding the US auto industry. Look, the return on capital in the auto industry is around 4.8%. That's horrible. It's an industry with immense fixed costs, regulation and uncertainty. US automakers use the dealership network to help manage inventory and cash flow. They offload an immense cost center (and risk) to thousands of independent dealers, each one carrying millions of dollars in inventory, parts, equipment, etc. Not saying it shouldn't be done, but uprooting this deeply entrenched financially symbiotic relationship would not be an easy undertaking.
  
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Mfennell on Aug 10, 2015

Is this just lazy reporting or deliberately misleading? I'm really not sure. Tesla's automotive margin was 23.9% in Q2. They don't "lose money on each car", they actually make quite a lot. It took me less than 5 minutes to find the source information: http://files.shareholder.com/downloads/ABEA-4CW8X0/546418763x0x843991/DCDCCFDA-0709-405B-931A-B2F48A224CE8/Tesla_Q2_2015_Shareholder_Letter.pdf Whether the huge R&D is sustainable and whether they'll ever make a real profit are legitimate questions but the headline is simply false.

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- Pch101 on Aug 10, 2015
  
  I explained above why Tesla has inflated gross margins. You know why Musk is always touting Tesla's gross margins? Because he knows quite well what I explained above, while most of the rest of you don't.
  
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- Mfennell on Aug 10, 2015
  
  @Pch101 Interesting point. They lump sales costs into "Selling, general and administrative". 201MM! Still a tiny profit excluding R&D. Assume that includes stores, supercharger buildout, and every person not working R&D. The marginal cost of selling a car must be quite low though. How should they calculate gross per car if you don't like the way they do it now?
  
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- Pch101 on Aug 10, 2015
  
  @mfennell The problem isn't with the calculation itself, but with analysts missing what it means. Tesla's gross margins simply cannot be compared to major automakers, because most of their revenues are wholesale while Tesla's are entirely retail. It's fine to know what the gross margins are, but failing to adjust for the differences when direct comparisons are made suggests that the average media analyst doesn't know the basics of how to read a financial statement. You would think that someone would point this out so that readers aren't duped by press releases, but apparently not. And R&D is not an optional cost. One reason that major automakers partner on some low-volume projects is to reduce the costs so that the project can be profitable. The high cost of R&D is one of the basic reasons why small independent automakers are unlikely to succeed. And Tesla spends too little on R&D, which means that the losses are lower than they should be. Tesla needs to conserve cash, so it defers its R&D costs, hence the ongoing product delays. If there was a smart analyst out there, then he or she would ask how the development of the replacement Model S is coming along, since a normal automaker would develop the replacement model just about as soon as a new model is released -- it takes years to develop a car. But don't expect anyone to ask.
  
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- Mfennell on Aug 10, 2015
  
  @Pch101 All good points but when the media reports are "Tesla loses $4k/car!!!!", I don't hold much hope for a nuanced analysis. I'll bet real investment institutions read the report as you do, they just don't have any interest in writing for the public. Very good point about the Model S successor. I have a vague feeling that time to market *could* be lower for an EV because so much time is eaten up normally designing compliant powertrains but that's just a hunch but, as you suggest, at this point the should have a design in the bag. All that said - I called the Roadster vaporware back in the day and now delivery of the Model S 100,000 is in sight (they don't deliver in strict order but VINs > 100,000 have been assigned). Rational analysis does not always apply. :)
  
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- Pch101 on Aug 10, 2015
  
  @Pch101 Yes, the media got it wrong. During the first half of 2015, Tesla generated EBIT of about ($273 million) on deliveries of about 22,000 units. So it actually lost about $12k per unit, not $4k.
  
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VenomV12 on Aug 10, 2015

Eh, anyone that understands finance at this level knows that losing money doesn't always mean losing money. People like my parents really lose Teslas and at the right price I would even buy one once the issues I am concerned about are fixed. I'm also pretty sure my brother will buy one in the next year. I am slowly warming up to the company. I wish they would make electric mowers, I would buy one in a heartbeat and all my neighbors them also.

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