The purpose of Tesla is not to make money

https://techcrunch.com/2017/11/26/in-praise-of-teslas-bankruptcy/

by imartin2k • 9 years ago

160 189 9 years ago

hkmurakami• 9 years ago

A mission (or outcome) driven company can only continue its mission if it can be financially viable.

A non financially viable incarnation of a mission driven business will not be able to further its cause compared to its longer lived version. At some point a reckoning will come and take away the path to your objective.

See the recent news about Etsy listing its way.

cryptoz• 9 years ago

Tesla is losing a massive amount of money

This just simply isn't true. Losing the money means they spent it and got nothing for it. But every penny they spend, they get a lot of things - battery technology, market share, mindshare, network effect lockins (superchargers), etc. Tesla isn't losing its money, its investing it.

Also,

The purpose of Tesla is not to make money; it is to pioneer fleets of smart mass-market electric cars, and the infrastructure to support them, and battery technology which is not limited to cars. Making money is ancillary.

This is also false. It buys into Elon's marketing and it's false. The purpose of Tesla is to make money. Elon likes to say that it's not the money he is after, it's the faster pace of adoption for electric cars. But he also knows that the fastest way for this to happen is for Tesla to make money. The author is false. The purpose of Tesla is indeed to make money.

encoderer• 9 years ago

Capital investments aren’t counted as losses on financial statements. So, you are correct about that.

But they still do have losses.

dragontamer3• 9 years ago

This just simply isn't true. Losing the money means they spent it and got nothing for it. But every penny they spend, they get a lot of things - battery technology, market share, mindshare, network effect lockins (superchargers), etc. Tesla isn't losing its money, its investing it.

Yes, and such things are reflected in their balance sheet under "Assets" and "Goodwill". The problem with Tesla is that after accounting for their "Assets" and "Goodwill", they're still negative.

Tesla says its "Goodwill" is worth $461,989,000 in 2016 for example. See its 2017 10k if you don't believe me (its in "thousands", so search for 461,989). http://ir.tesla.com/secfiling.cfm?filingID=1564590-17-3118&C...

The rest of Tesla's assets, which include every factory, every bit of cash, every investment... was estimated to be $ 692,925,000.

That is, Tesla believes itself to be a $1 Billion company, but roughly half of its valuation is "Goodwill" and brand recognition.

Believe it or not, Wall Street has names for the things you've described. Its all part of the calculation.

----------

Anyway, after accounting for all of that, Tesla is still losing money, quarter after quarter, year after year.

Meegul• 9 years ago

Unfortunately I believe the numbers you're citing are actually in relation to their Solar City acquisition. The roughly $1B figure you're citing is the valuation of Solar City, not Tesla.

mbesto4• 9 years ago

Either way, a far more interesting question, if (like me) you have no financial interest in the business’s success or failure, is: does it matter?

I guess the author has glanced over the billions of subsidies that come from taxpayers? [0] So ya, I think American taxpayers should care about Tesla's bankruptcy.

PS - The author of this article is the CTO of a company who's customer is, yup, you guessed it, Tesla. [1]

TC at it's finest folks.

[0] http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...

[1] https://happyfuncorp.com/case_studies/hfc-labs-making-tesla-...

maratd• 9 years ago

Why are you conflating SpaceX and Tesla?

rconti• 9 years ago

I would have said "and SolarCity" but of course Tesla owns SolarCity now.

It's really quite genius to build a really expensive solar roof tile when the tax breaks are for solar installations. Find a way to charge a premium price for a premium product (eg, a tile, not just a simple panel), get tax breaks for it all!

skybrian3• 9 years ago

That's a sunk cost, though. It's not a financial interest in the company unless taxpayers could lose more money. (Or gain money.)

devrand• 9 years ago

I think you misunderstood your source [1]. He appears to be the CTO of a company that made a third-party app for Tesla owners, called TezLab. It does not appear to be affiliated with Tesla, and appears to have even rebranded at some point from "Teslab" to "TezLab". The closest relationship appears to be that the CTO owns a Tesla.

mbesto4• 9 years ago

Either way - his company gains if Tesla succeeds no?

dewski• 9 years ago

Tesla didn't contract them to make TesLab.

HFC co-founders Ben Schippers and Will Schenk are both Tesla owners and wanted to levelup their driving experience, pushing the limits of the data being collected to help solve typical ownership problems that Tesla itself had not yet addressed and add a bit of fun.

Where is your source?

fahayekwasright• 9 years ago

As a taxpayer, I support Tesla, am glad to have subsidized them, and I don’t care if they turn a profit.

nkoren2• 9 years ago

I call bullshit on [0]. The government is buying goods and services from SpaceX. That's not subsidizing -- that's being a customer. It's particularly not subsidizing when the alternative suppliers of said goods and services are 3-7 times the price.

mbesto4• 9 years ago

Ok, here ya go:

https://seekingalpha.com/article/4079749-nevada-demonstrates...

lmilcin4• 9 years ago

People are blinded by so called conventional wisdom which is what business people built when working with conventional businesses to make it easier for them to understand what is going on, in most cases.

Tesla is not a conventional business. It is more of an edge case where you have to put your thinking hat to make sense of it.

cbanek2• 9 years ago

People are blinded by so called conventional wisdom

This seems to be the exact kind of thinking that led to the dotcom bust.

I've commented before on the whole Tesla valuation thing, and people try to think of it like a tech company, and want to value it like a tech company. Tesla needs to actually produce things in a factory, deal with regulations and supply chain, which are very conventional business problems, and where the trouble is.

lmilcin4• 9 years ago

Tesla is not a production company yet. Tesla is a promise of what it can be. The promise is that it can be one of the biggest, greatest and most important companies in the world, sometimes in the future. The current job of Tesla is not to start producing tons of cash, it is to maintain the faith that the promise will be fulfilled.

The faith is maintained in few ways:

- by constantly kicking ass technologically -- improving the products way outside of what competitors believed was even possible,

- by iterating crazy fast on their ideas -- something that conventional car companies will not be able to do. They won't be able to do because they would have to replace most of their management with people that are suited to this pace of change. Conventional car companies may flex muscles, but all their money will not be enough because the biggest problem doesn't lie in having the funds but in people. Funds are easy once you show you can do it, but getting the right people is much more difficult once you have large and established business.

- by showing they can maintain exponential growth until they are dominant force in the market.

aaavl282110• 9 years ago

A counter argument is that tesla is a conventional business that is packaged by Elon musks masterful salesmanship as a one of a kind company where normal rules don't apply. At my old company Martin shkreli pitched to us a few times, and Elon uses some similar reality distortion tricks to excite investors.

For tesla, that is necessary, because no rational investor would invest in an electric car startup. But if you can get investors excited enough about some vague but very promising future, they will overlook short term failures and be guided less by fact than belief

lmilcin4• 9 years ago

I guess this "conventional" thinking was due to the fact that electric car startups had bad history of not delivering.

Tesla excites investors because they have history of not only delivering but also exceeding expectations. I think as long as they keep delivering on those expectations, they will be immune to conventional valuation methods.

maxxxxx2• 9 years ago

"Tesla is not a conventional business. "

Tesla is a car and battery manufacturer. That's a very conventional business.

lmilcin4• 9 years ago

My understanding is Tesla is development process company focused on learning and iterating with the production being only by-product of that process, necessary to keep the promise of greateness alive and also to support the learning process.

My experience, it is neigh impossible to really learn without delivering the product, but you can learn without bringing in profit.

verletx64• 9 years ago

It is more of an edge case where you have to put your thinking hat to make sense of it.

It is far too simplistic to imply that those that are a bit bearish on Tesla's prospects are simply not "wearing their thinking caps".

In the end, you can't discount what 'business people' think, because they're the ones on the other end of the table.

chki• 9 years ago

After all, even if Tesla stock goes to zero, and its bonds default to pennies-on-the-dollar, its factories and software repositories and human capital will all be there, and no Chapter 11 court or committee will be blind to the fact that they’re worth far more as a coherent unit than they would be as separate assets.

Well, to me that statement seems to be at least dubious. If the company is loosing money and goes bankrupt it is obviously not worth something in its entirety - at least in its current form. (And I highly doubt that simply restructuring Tesla would do something about that.)

This does however not neglect the premise of the article. Even if Tesla would no longer exist in any form, there has been some creation of value for society as a whole.

mjw1007• 9 years ago

It's worth something if it was only losing money because it couldn't afford to service its debt.

paulpauper4• 9 years ago

regarding human capital, when a company goes bankrupt many employees lose their jobs.

the current stock price takes into account all those variables. When a bankrupt stock goes to near zero, that takes into account totality of all the intellectual property, factories, etc.

empath752• 9 years ago

Tesla going bankrupt wouldn’t be an isolated event. It would probably be something like the aol-time Warner merger or the Lehman Brothers bankruptcy and trigger a general market correction.

neurotech1• 9 years ago

Well, to me that statement seems to be at least dubious. If the company is loosing money and goes bankrupt it is obviously not worth something in its entirety - at least in its current form. (And I highly doubt that simply restructuring Tesla would do something about that.)

Bankruptcy means the company has more debt obligations than assets, and has ran out of cash. It does not mean the company assets are worth nothing.

In a theoretical Chapter 11, Tesla Energy and the "battery factory" would still be worth many billions, even if they never sold another car.

Tesla is doing pretty good for a highly capital intensive and growing company.

thewhitetulip• 9 years ago

It has already done it's job. "EV were impossible to build." just a few years ago when the Israeli PM met with top five auto manufacturers.

Then came Tesla and now the fastest car is Tesla Roadster.

Cthulhu_4• 9 years ago

Not yet, it's not been released yet and I'm fairly sure there's not been independent tests yet.

skybrian3• 9 years ago

It helps that Tesla isn't in the S&P 500 yet. But I wonder what other indexes they're in?

paulpauper4• 9 years ago

Does techcrunch not realize the gravity of publishing an article with such a false and misleading headline pertaining to solvency of a company? They could get sued..imagine such an article were released during market hours. Many traders and bots make decisions on headlines.

skybrian3• 9 years ago

Has a newspaper ever been sued due to publishing something that moves markets? I don't think that's a thing.

paulpauper4• 9 years ago

when I saw the headline, I immediately did a google search to confirm if Tesla actually went bankrupt. Obv. it didn't. Occasionally, companies go bankrupt overnight, with little forewarning. One such example is Gtat, which filed bankruptcy overnight after disclosing the loss of an Apple contract. I'm amazed the editors would allow such a headline considering the potential seriousness of making misleading statements about public companies, where billions of dollars are at stake.

What If put up a headline "company X is bankrupt" and then the article continues "bankrupt in ethics..gotcha"

mantas• 9 years ago

Many traders and bots make decisions on headlines

Is it that easy to troll supposedly smart people and AI?

paulpauper4• 9 years ago

Bots exist that trade off headlines..for example, mergers. here's one example http://www.dailymail.co.uk/news/article-3023220/Wall-Street-...

garmaine• 9 years ago

Neither people nor AI are generally smart.

tim3332• 9 years ago

Sometimes the traders trading on headlines are smart and are counting on less smart people to act on the headline a bit later. By the way I don't think that techcrunch article will effect anything much. It's a bit dumb - a bankrupt Tesla wouldn't leave functional assets in the same way that the channel tunnel did for example.

ceejayoz• 9 years ago

Many traders and bots make decisions on headlines.

How is that anyone's fault but theirs? They should know and accept the risks of doing so. It's not like misleading clickbait is a new phenomenon.

jondubois4• 9 years ago

I never thought I'd read a TechCrunch article which puts into question the integrity of the entire capitalist system...

This is very different from the typical capitalist rhetoric that if you're smart and work hard in ways that benefit society, you'll be personally rewarded. Now it seems that the conditions for success are extremely ambiguous.

Bankruptcy is essentially a hack on the system and to now pretend that it's a normal part of an efficient capitalist society is quite outrageous.

If it were real capitalism, there would be no bankruptcy, you'd have to work to pay back every penny for the rest of your life. I'd prefer that. Because otherwise you're just encouraging people to take risks using other people's money.

aaavl282110• 9 years ago

Investing in ambitious companies that could lose everything or make a fortune is the name of the (venture) capitalist game

Also, bankruptcy is not a "hack", it is a legal process to protect creditors / vendors / employees as well as companies. while there is a widespread belief, encouraged by politicians post financial crisis, that companies use bankruptcy as a way to protect themselves from risk, that is incorrect. Bankruptcy is a legal process for dividing up a failed companies assets so that it is not a free for all. It protects employees by preventing powerful creditors from forcefully claiming value until other constituents get paid in accordance with the legal statues of the process

jondubois4• 9 years ago

VCs are a flaw in the system.

It costs almost $0 for an engineer to build software and yet VCs have somehow managed to artificially raise the barrier to entry and got huge paychecks for themselves in the process.

If VCs did not exist, I'm certain that we would have all the software, websites and apps that we have today except that it would have cost society much less to get to that point... Also maybe these apps and websites wouldn't be the terrible morally bankrupt profit machines they are today.

vasco• 9 years ago

Tesla looks like Elon's attempt at running a high-stakes Amazon-for-batteries type business where they invest all they get into the business and get massive adoption in the long run. Except for a much much more capital intensive industry, and where so far more than a couple of things have gone wrong.

At the moment they're in a very tough spot where they've issued bonds, folded Solar City into Tesla in a weird attempt at bad accounting and pretended like (already 3) new product lines were ready to take in pre-order money. Meanwhile they're using excess battery production capacity not being used for cars (which are stuck in slow production lines) for a quick (small) buck in Australia and Puerto Rico.

I think we're going to see either a secondary offer or new bonds being issued soon.

whamlastxmas2• 9 years ago

I mean this as nicely as possible: armchair speculation like this doesn't make sense to me. You're insinuating you'd be a better decision maker than an entire team of lawyers, executives, and accountants at a fairly prestigious place to work. Describing things as "bad accounting" or suggesting they're trying to make a "quick buck" just makes it seem like you lack the awareness to realize that you probably don't have all the information and haven't spent the same amount of time and effort in decision making as the executives at Tesla. You're not some lost genius in a world full of idiots. People are generally rationale actors, and the people working at Tesla seem pretty smart to me.

csours• 9 years ago

As a counterpoint, a lot of high profile people, especially on the production side have quit working at Tesla.

setpatchaddress• 9 years ago

The typo in your last sentence (“rationale” where you mean “rational”) actually makes it more accurate. It’s possible to rationalize anything. Read history — maybe something by Halberstam — smart people can be very wrong. Groups of smart people, even.

Disclosure: I have no opinion on Tesla’s financials. Everything might be fine. I have negative opinions about their cars. I do like SpaceX, and I like the people I’ve met at SpaceX.

computerex• 9 years ago

Your entire argument hinges on:

People are generally rationale actors

This is the internet, and people are allowed to speculate. "I am sure they know what they are doing, they are really smart people" is not an argument.

Spooky23• 9 years ago

Accounting is boring. They don’t call it bean counting for nothing. When your accounting or corporate governance is interesting, that’s a bad sign.

In this environment, where the government subsidies they depend on may vaporize at any time, exciting accounting is really dangerous for the business.

Danihan• 9 years ago

You're not some lost genius in a world full of idiots.

Ehhh..

aerovistae2• 9 years ago

EXACTLY

danso4• 9 years ago

You're insinuating you'd be a better decision maker than an entire team of lawyers, executives, and accountants at a fairly prestigious place to work.

And you're assuming that top-tier people at a company are able to make rational and optimal decisions when their livelihoods depends on the perceived survival and success of their company.

posterboy• 9 years ago

I mean this as nicely as possible

so, assume the same would be the case for the comment you replied to. As with regards to "insinuating", etc.

spo81rty• 9 years ago

I love Tesla cars. There is no way I would own the stock.

Tesla would be better off if they designed cars and let someone else manufacturer them.

whamlastxmas2• 9 years ago

Have you really looked into this? How much would it cost Tesla in the long term to let someone else manufacture their cars? How would this impact their long term profitability? Would their competitors even be willing to do this? What kind of terms could they manage to negotiate? How much of a risk is it to let someone else have a stranglehold on your manufacturing?

I don't understand sweeping opinions like this when you have no idea what you're talking about.

ridgeguy• 9 years ago

I think it's an interesting idea. I wouldn't summarily dismiss it.

Your questions about it are interesting, unanswered, and not fatal to the idea.

After all, don't Foxconn, et al., have a stranglehold on the manufacture of Apple's iPhones? That seems to be working out ok for all parties.

DennisP4• 9 years ago

From a quick look at their balance sheet, in the past year their total assets have increased from $12 billion to $28 billion, and debt from $2 billion to $9 billion, for an increase in net assets of $9 billion. Cash flow is fine too; total cash is up almost half a billion over the past year, for a total of $3.5B.

Looking at their cash flow statement, they are spending a lot but mostly on capital expenditures.

I don't see any reason to even think about bankruptcy. They're doing fine.

https://finance.google.com/finance?q=NASDAQ%3ATSLA&fstype=ii...

ArmandGrillet• 9 years ago

Those financial statements are not in the article and that's a shame. I would expect journalists writing about the potential bankruptcy of a company to give more numbers and less "maybe"s (word used 5 times in the article).

majewsky• 9 years ago

The point of the article (as I understood) was precisely to explore every other angle except for the financial statement (since that's what every other article about TSLA covers).

chipotle_coyote• 9 years ago

It's an opinion piece, not journalistic reporting -- the thesis isn't "Tesla is going to go bankrupt and here's why," but rather "here's why I don't think it matters whether Tesla goes bankrupt." It'd arguably be nice to have a sentence or two about "of course, they may not be in trouble after all," but it doesn't really affect the author's argument.

I don't think this is really written for folks who are bullish on Tesla, anyway. It's written for critics, and for folks like myself who might describe themselves as "fascinated skeptics."

eru• 9 years ago

Thanks for crunching the numbers!

aaavl282110• 9 years ago

Right now, their pp&e and working capital seem like they could be liquidated to pay back debt, so agree that bankruptcy doesn't seem to be a near term concern.

However I don't know what covenants are in those loan documents, and its possible that given the delays tesla could trip a covenant and get in trouble with lenders. Though I'm sure Elon has worked his magic on them as well

Hard to say if they're doing fine at this point, as the model 3 doesn't really show up in the financials yet. The real concern is that model 3 production capacity increases without sufficiently decreasing production efficiency. So revenue goes up but COGS skyrockets, and the business is structurally not profitable on even a gross profit basis. This would lead to huge financing needs, and also probably a drop in the stock price (though the stock price seems immune to dropping). This could lead to company failure and is not a theoretical risk

DennisP4• 9 years ago

Sure, if they end up selling the Model 3 at a loss they'll be in trouble, but I don't see any particular reason to think that'll happen. And most likely they'll be fine with lenders as long as they make the payments, which so far they seem perfectly able to do.

smallnamespace• 9 years ago

could trip a covenant and get in trouble with lenders

Lenders usually don't exercise their covenants willy-nilly because doing so is a good way to end up with less money than you started with.

Most covenants are written broadly, in a way to let lenders recapture some of their principal in the event the corporation is indeed on the way to bankruptcy.

Specific example: company is floundering, throwing their remaining cash into a losing business. Lenders might prefer to trigger covenants, take them to bankruptcy, and liquidate and receive 60 cents on the dollar, rather than wait and receive less later on.

But if the lenders think the business is doing fine and they will eventually get repaid, the covenants are more of a negotiating position rather than a real threat.

Of course all this changes if the debt changes hands and, say, a hostile entity gets a controlling share -- but that's what finance departments are supposed to look out for.

xadhominemx• 9 years ago

If Tesla liquidated its PP&E, you would have no assets with which to make automobiles and it would go bankrupt.

mcguire• 9 years ago

I'm not an accountant, and I don't have Tracey's (?) book on analysing financial statements handy but...

Additional paid-in capital (https://finance.google.com/finance?q=NASDAQ%3ATSLA&fstype=ii...) went from $3.4B to $7.8B in 2016 to $9.0B as of 9/30. Issuance of stock provided $1.9B in 2016 and $0.5B so far this year (https://finance.google.com/finance?q=NASDAQ%3ATSLA&fstype=ii...).

What happens when the currently-expected market correction hits and Tesla has a harder time going to the capital markets for money?

Someone• 9 years ago

_If_ they are still performing as they are now when that happens, they will be in trouble. They predict to have a healthy cash flow from the model 3 soon, though. 5000 cars a week at the end of Q1 2018 would bring in at least $175M a week on income or, ballpark, in the range of a billion a year in margins. I don’t think that would be enough to warrant their share price, but it would be enough to keep the company running.

(minor negative: $1000 of the money paid for each model 3 sold already is in their bank account)

austenallred2• 9 years ago

It’s funny to see everyone praise Amazon’s strategy of “invest everything you possibly can regardless of what the income statement looks like in the short-term. Tesla does the same thing and all anyone can say is “look at the income statement!”

Granted there are some differences, but the strategy is the same.

kamaal• 9 years ago

For people to see how this can be positive, some time needs to pass.

Most people are tuned to think in terms of linear growth.

nCwLABXpfJLz4• 9 years ago

Except Tesla is almost never cash flow positive on an operating basis, while Amazon almost always has been. Tesla is financing their expansion (in addition to covering past loses) with new cash infusions, while Amazon financed their expansion with actual profits. Justifying Tesla losing money because of Amazon is a complete false equivalence.

megy• 9 years ago

Everybody did not praise Amazon.

Amazon had a lot lower losses.

IBM3• 9 years ago

What? Did you actually look at their cash flows? They are massively free cash flow negative, and it's only getting more negative every quarter. The only reason cash is up is because they regularly tap the capital markets with debt and equity, which is why Elon is constantly looking for new ways to boost the stock.

The only way Tesla avoids bankruptcy is if the markets keep believing in the Elon magic, because the operations are definitely not financing the investment required.

This is the key thing people miss when people falsely compare Tesla to Amazon. Amazon has always been free cash flow positive. They may never have turned a GAAP profit for many years, but they weren't issuing stock to finance their growth.

aerovistae2• 9 years ago

Yeah, because they didn't have to build out factories and 500,000 cars in order to grow.

If they did, they would have tapped the markets too.

dforrestwilson• 9 years ago

^ Why was this down-voted? This analysis is correct.

Tesla is on track to burn >$500m/quarter going forward and will once again have to access capital markets in 2018. Junk bond markets have been puking for the past 3 months, so that option probably is getting less likely. That leaves equity dilution. Not good for current shareholders. http://archive.fast-edgar.com//20171103/APA8Q22CZM22D262222M...

A lot of the "Assets" noted on the balance sheet are the reservation costs for all of Tesla and Solar City's promised products. Tesla recently laid off a significant portion of their workforce at the Model 3 factory. Output was much lower than they had guided to for the quarter. It doesn't look like that's going to change soon. If customers start demanding refunds a lot of the assets listed on the balance sheet go away.

The liabilities on the other hand, won't be going anywhere.

People can insist that Tesla is effecting some positive changes in the world, but it seems to me that mostly they have been good at repackaging and reselling the tech of other companies in creative ways.

dalbasal• 9 years ago

You're right, but (IMO) only looking at half of the whole.

Tesla is spending a lot. More than they earn. Whatever back-of-the-envelope profitability model you attribute to their car making operation to differentiate marginal-operational from capital-investment costs, it does not add up to anything like enough to cover all costs. They cannot cover costs from free cash (as you say) which means they need capital coming in (as you say), debt and equity.

But, this doesn't mean they are selling elonmagic. No one would expect a car company to bootstrap, grow from cash flow. The place they expect to be is cash-hungry. This is what accountants are for, figuring out if a company is headed towards profitability when free cash flow is not an indicator.

The whole idea is that Tesla will be gradually capitalized to the point where it is like GM or Toyota.

Where elonmagic does come in is the same place startup-magic always comes in. It's novel in the auto industry. But, it's bread and butter on crunchbase (or here).

Does this company have the potential to create a large, high margin business. The accountant will have a harder time telling you this, and so will annual report readers. It's like answering the question Will Facebook manage to build an advertising business like Goog's? The answer turned out to be yes, so FB is worth a lot of money. Valuation of FB at IPO time was essentially the aggregate investor's answer to that question at that time.

Elonmagigic plays a big role in that 2nd part, unavoidably. This seems reasonable and to me.

Accounts are accounts. Sometimes the story is simple, and accoutns tell a simple story. Sometimes the real story is there, but takes context, digging and smart accountants to tell properly. Some important parts of the story are not in the accounts, like the fact the Tesla can apparently produce a faster supercar than anyone at 1/4 of the cost.

DennisP4• 9 years ago

Most of the new financing is debt, which I referred to above. The new equity is only $472M for the first nine months of this year.

Their operating loss over the same period is $570M. As I also said, most of what they're spending is capital expenditure, amounting to about $3B.

I.e. the basic story here is simple: they're borrowing a bunch of money to build new factories, which is exactly what you would expect a new car company to do.

kgwgk• 9 years ago

To be fair, Amazon issues shares to give to employees. The dilution is not huge but it’s real and helps to keep cash-flows positive and make the company look more profitable than it is.

pbhowmic• 9 years ago

Agreed. This is a R&D heavy venture, hence the capital expenditure is high too. How can one fail to capture the fact that their intellectual-property portfolio is a store of their value, as are the factories and the market lead they have not just in self-driving EVs but in batteries & solar tech. This is one of the dumbest articles I have read in a long while. Money spent on NOT money up in smoke. Somebody give this guy a crash course in corporate finance.

nCwLABXpfJLz4• 9 years ago

What market lead in self-driving EVs? Their lane-keep that occasionally veers out of the lane? The market leader in self-driving EVs is Cruise, and if you take away your EV qualifier, it's Waymo.

The NUMMI factory is worth little. Automakers are unlikely to want to repurchase a CA factory due to all the regulations they would have to deal with.

What solar tech? Solar City was an installation company, which Tesla bailed out and has been winding down. The solar freaking roof thing doesn't even exist yet--Tesla's reveal was a bunch of fake solar shingles.

People will very generously give Tesla all kinds of benefit of the doubt, but these people might soon realize they don't know what they're talking about.

nCwLABXpfJLz4• 9 years ago

If you think they're fine, maybe look at cash flows a little closer.

Cash flow is up half a billion because they just issued 1.8 billion in junk bonds (which are already trading in minus territory btw). Meanwhile operating cash flows are increasingly negative to the tune of hundreds of millions per quarter.

Sure, they're fine if they continue to raise billions. But they're nowhere near profitable, and they're also going to continue to lose billions. What's going to happen if they receive a credit downgrade or institutional investors decide to stop playing along?

colordrops• 9 years ago

It's just typical anti-Tesla propaganda.

vectorEQ• 9 years ago

just because they earn money ,doesnt mean it's their main goal. a lot of IT companies who are HUGE didnt even have a model to earn money. they just got a lot of it because they made something that was wanted by a lot of people.

sharpercoder2• 9 years ago

One substantial possible factor in Tesla's bankruptcy is competition. You suddenly now deal with car manufacturers which are woken up to the electric drive age.

Thought exercise: how can competition take serious levels while Tesla produces half or more of the world's battery capacity?

will_hughes• 9 years ago

You suddenly now deal with car manufacturers which are woken up to the electric drive age.

This keeps getting repeated, but all I see are some meagre efforts which seem primarily focussed on headlines rather than actually delivering mass-scale EVs. Concepts. Demonstrators. The closest any of them have come is the Bolt (which is limited in availability, and their dealer networks regularly push people away from buying), and the Leaf (which until the most recent model still looked far too much like a golf buggy and had very limited range).

These are large companies with massive departments used to pushing out new vehicle models every year and updating production lines to suit.

I'm still yet to hear of any of the major manufacturers sign contracts for large scale battery deliveries to support any mass EV production.

I don't understand why their outlook is always 2019-2020-2025-2030 for their full EV range unless they're just hoping for Tesla to fail and finally be able to point out and say "See, EV doesn't work!" so they can go back to what they've been doing for a long while.

sharpercoder2• 9 years ago

Exactly my point. They can design an electric car just fine, they can produce an electric car sans battery just fine, they can sell them just fine.

They can't setup scale-up battery production sites within years. That's why serious competition from traditional car manufacturers won't happen anytime before 2022.

Chinese producers are a different story. They have the government behind them for resourcing (Lithium and Cobalt). I see Chinese manufacturers as the most serious possible competition. However, it's not unlikely the government will not allow exporting of electric vehicles on a mass scale since they will want to use them theirselves.

agumonkey2• 9 years ago

Anybody listened to one recent conf call with Musk ? it was on youtube.

He seems to be in some good sht (subpar assembly line for the batteries and/or engine having to be reassembled from scratch which is done according to him) so so far this particular problem is not out of control for Tesla, but then time is critical too, competition is ramping up, and laws are shifting (EV tax cut is gone now I believe).

I like Musk approach of going legacy free to stretch the limits of the current model, as he did for SpaceX. I'd be sad if Tesla choked enough to crash. If he just made it to the model 3 production that would be "cool".

I don't know how people in the know understand the recent Semi/Roadster unveiling, is it distraction to get some buzz or a final scheme to finance the model3 step with easier things to be done in 2020 (smaller market for Semi and I believe a litle less complex to build than a cramped 4 seater)

rockinghigh• 9 years ago

EV tax cuts are not gone. Some versions of the tax bill proposed to remove the federal tax credits. Also Tesla will reach the 200,000 threshold of cars sold where the credit starts to phase out. But there are still state incentives.

agumonkey2• 9 years ago

Ha, I forgot the 200K figure, but I believe there was a year limit too. Otherwise the blame is on Musk u_u

lafar6502• 9 years ago

It’s not about money, it’s about wasteful and parasitic businesses financed unknowingly by society

acjohnson55• 9 years ago

Check out the book Doing Capitalism In The Innovation Economy for a defense of the government encouraging exactly this sort of thing. I reviewed it on Amazon here: https://www.amazon.com/review/R2SCHS5SXNDF30.

Point being, we want exactly this sort of thing, but it's foolish to expect the market to make this sort of investment very often.

xrayarx• 9 years ago

We should not forget, that bad press about tesla is in the interest of Jim Chanos, who is a billionaire and has a big short against tesla. If Tesla stock falls, he wins. Since he holds this short position, he is in the press once a month.

aaavl282110• 9 years ago

On the other hand, good press about tesla is in the interest of Elon musk and tesla shareholders. Wars between bulls and bears on controversial stocks are waged largely in the press

Xunxi• 9 years ago

https://www.bloomberg.com/news/articles/2017-10-12/chanos-s-...

Apocryphon• 9 years ago

What if, Tesla is simply a Silicon Valley startup, and the endgame is to get one of the Big Three to acquire them so they don't have to worry about their day-to-day finances?

gozur88• 9 years ago

I'm not sure if that was the goal, but I think that's the way it's going to play out.

SimbaOnSteroids• 9 years ago

They've already IPO'd.

stevenj• 9 years ago

It can still be acquired and/or taken private.

blake8086• 9 years ago

From what I've seen, the point of Tesla is to burn money as fast as possible. I have two episodes of a podcast with a friend about exactly this topic:

First episode: https://www.youtube.com/watch?v=6bQW1fEUsbk

Most recent episode: https://www.youtube.com/watch?v=VXyIriINVK0

I highly recommend them if you're interested in investing in Tesla (long or short)

dmfdmf• 9 years ago

I enjoyed your podcast and I agree, it looks dire for Tesla.

tim3332• 9 years ago

Jim Chanos summarized all of the reasons why nicely: “If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.”

A major box it doesn't tick from a short sellers perspective is the "make something people want" thing. Loads of people want it's cars and would be trucks. The main question is can they deliver them but I'd be wary being short in case they can.

bob_theslob646• 9 years ago

The issue is time frame. Chanos smells blood in the water for the upcoming quarter(s).

The question he is going to have to face is whether he can stay solvent longer than Tsla stock price is irrational.

My bet is he stays in 2-3 quarters until he makes his kill and then exits.

ChuckMcM2• 9 years ago

I've made money in the past buying out of the money call options on TSLA, I'm guessing all those short sellers buying butterflies.

That said, the point that sticks out at me in the article is this one -- "... because money is how we measure success. And this is in fact true of most companies. But it is not true of Tesla. 'When a measure becomes a target, it ceases to be a good measure,' and this is as true of money as it is of any other measure. The purpose of Tesla is not to make money;"

There is a tremendous amount of visibility put on the company, and Elon is up front about what they are trying to achieve. The arguments against them succeeding boil down to either 'we don't believe you can do what you say you can do.' or 'we don't understand why you are doing what you're doing, so it must be wrong.'

It used to really bug me when someone told me that what I was proposing was impossible. I work to do the necessary research and foundation work to understand the risks and challenges of a course of action and someone says "Well, I've never heard of anyone who could do that so you clearly are missing something." No discussion of the idea, no attempt to understand how I came to believe what I did.

One of the things I admire in Elon is that he seems really good at just completely ignoring that noise. It is something I have tried to cultivate as it is helpful in starting new businesses or projects to be able to not get bogged down by people who want to tell you why you are wrong and are unwilling to listen to how you think you may be right.

mlevental• 9 years ago

how do you make money buying call options that are out of the money? do they go back into the money before expiry?

ChuckMcM2• 9 years ago

This is not investment advice! I'm just explaining how it works ...

These days they have gone a bit crazy but it works like this, I would buy Jan '19 call options that are out of the money[1]. Looking at some that are 'fairly close' (closed at $315, options at $320). They are selling for about $55 [ibid]. So you buy a contract (100 shares) which costs you $5,500. Now if TSLA goes up during 2018 people will want to buy those calls from you for more than $55. Of course if TSLA goes down, or stays down all year then come January 19 you can either buy your 100 shares for an additional $32,000 (which you won't since you would lose money on that deal) or let the call expire in which case the person who sold the option keeps the shares and the $5,500 you spent.

But here is the fun part, if TSLA goes up 10% (315 -> 346), now your calls are "in the money by $31", and if you look at calls in 2019 that are in the money for $30[2] you see they are trading around $69. Which if you sold your contract for that would get you $6,900 or a gain of 25%.

Compared to the alternative of buying 18 shares at 315 for $5,670, and selling them when they went up 10% to 346 at $6,228 for a 10% gain.

Buying actual shares is the safer way to go because if you buy a call option you lose the entire $5,500 if the stock doesn't go up above the strike price! Buying the call options gives you an opportunity to leverage the volatility for a higher return.

I've observed there is a lot of 'passion' investing (rather than say reasonable investing) in TSLA where people buy it regardless and so it defies gravity and goes up anyway.

[1] http://www.nasdaq.com/symbol/tsla/option-chain?dateindex=7&c...

[2] http://www.nasdaq.com/symbol/tsla/option-chain?callput=call&...

volgo• 9 years ago

I don't believe in Tesla's long term business, but you have to be either a naive fool or insanely rich to short Tesla.

As Warren Buffett once said, the market can be delusional a lot longer than you can be liquid. You can be right and still lose a ton of money

scotty79• 9 years ago

The idea that stocks exist for some investors to get rich is utterly silly.

Stocks exist to trick investors into funding someone elses ideas that they wouldn't fund otherwise by selling them casino chips that they can use to gamble among themselves.

The only reason the company should be concerned about their share price would be that they want to issue more and they'd like to get as much money for them as possible.

The law that makes boards care about value for investors is the most ignorant thing ever written.

danso4• 9 years ago

Maybe; maybe not. Either way, a far more interesting question, if (like me) you have no financial interest in the business’s success or failure, is: does it matter?

If you're an American, it does matter in the sense that the subsidies that allow Tesla to keep moonshotting with relative comfort are paid through your tax dollars [0]. Tax dollars that could either go back to your pocket, or otherwise indirectly benefit you by subsidizing a more effective venture. Hell, some of those tax dollars could even be used to help the original moonshot institution.

I think what Tesla and Musk are doing is very cool. But let's face it, lots of companies and individuals could promise cool things if they had a multi-billion cushion. I think the OP makes some decent points about how silly it is to care about immediate or substantial profit margins -- hell, any investor in Amazon would agree with that.

But it seems dangerously naive to just think this:

But it is not true of Tesla. “When a measure becomes a target, it ceases to be a good measure,” and this is as true of money as it is of any other measure. The purpose of Tesla is not to make money; it is to pioneer fleets of smart mass-market electric cars, and the infrastructure to support them, and battery technology which is not limited to cars. Making money is ancillary.

That is the claimed purpose of Tesla. The author is confusing Tesla's self-interested claims with reality -- this is basically Kool-Aid-drinking-cultism. And giving Tesla and Musk the complete benefit of the doubt in terms of altruism, that doesn't mean that their positive dreaming has an infinite buffer against shitty implementation and business practices. Profit is definitely not everything, but it's a potentially very useful signal (among others) to weed out non-performance and incompetence.

[0] http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...

mjamesaustin• 9 years ago

Tesla's primary method of financing is through debt and equity, not through any government subsidy.

Yes they get ZEV credits, but the revenue from those pales in comparison to their sales, loans, and stock offerings.

Not to mention that most of the traditional car manufacturers in America received huge government bailouts to stay afloat in 2008, so even if you slight Tesla for receiving a loan (which they repaid early with interest) they are still on equal footing with other manufacturers.

jjeaff• 9 years ago

I think it would be rather large if you count the electric subsidies that states and feds pay for Tesla cars and solar panels.

Tesla themselves generally provides their price comparison or total cost of ownership figures including the government subsidies.

danso4• 9 years ago

Yes, you're right, it is unfair to not consider the many subsidies that entrenched companies (automotive or otherwise) have received and currently receive. If the LAT were to count up the ones for GM using the same standard they did for Tesla, it may very well end up being a similar magnitude of subsidy.

So I suppose the main thing GM and such companies have going for them is that they have a track record of being profitable and they would likely have a stronger chance of remaining profitable sans subsidies than Tesla. But I realize that argument is basically begging the question, if not an outright tautology (Wealthy companies are wealthy).

Furthermore, it's not at all destined that if Tesla got into a failing situation that U.S. politicians would feel an obligation to keep pumping them up, or to bail them out, especially in an Trump administration. And Tesla can hardly be blamed for taking advantage of publicized subsidies, it's no less sneaky than the way entrenched companies have taken advantage of those subsidies for decades, nevermind tax loopholes and shelters.

So I'll weaken my argument to this: Tesla's inability to make money is not, as the OP suggests, a non-issue for Americans. Tesla may be no different than any company in using tax credits and subsidies, but the fact remains that if Tesla fails -- a much more likely situation in terms of the near future than it is with most of the other car companies -- those tax credits/subsidies will have been greatly wasted. Because think about it: if Musk could effectively deliver on his technology ambitions -- I don't mean prototypes, but implementation and successful production -- in what likely economic scenario would a good-acting Tesla continue to be bleeding money?

In other words, at some point -- not this year, maybe not in the next 5 years, but also not never -- the lack of profit might be a signal that there is something fundamentally wrong with Tesla, either in its goals or in its internal workings. And claiming to have or actually having grand, life-improving ambitions means jack shit.

Would the OP have written this kind of piece of Theranos?

hwillis• 9 years ago

That stupid article has been debunked over and over. Its utter garbage. Random refutal: https://www.marketwatch.com/story/elon-musk-is-no-corporate-...

Cthulhu_4• 9 years ago

Sounds like an attempt at making GM and the other car manufacturers that were bailed out during the crisis not look as bad.

yters2• 9 years ago

Not a fan of giving sci-fi idealism a blank check. Moonshot is ok, that's how we got ICBMs and spy satellites, arguably necessary to keep a check on our enemies, though that is arguable these days. Roads and the Internet made even more sense. But, funding a for profit company with billions of tax money for sci-fi promises with unproven premises seems much more questionable.

fragmede• 9 years ago

The company's finances may be shaky, but electric cars aren't a "sci-fi promise with (an) unproven premise". The original Tesla Roadster came out in 2009 (or so), so there are 8-year old electric cars by Tesla driving around out there.

yters2• 9 years ago

To throw so much money at the enterprise hinges on the assumption that electric cars can be a significant replacement for fossil fueled cars, and displace the electricity production (and other manufacturing costs) in such a way to be much more environmentally and economically viable. Just because we have a few (proportionally) working electric cars does not mean this vision is plausible. The original automobile did not need this kind of extrapolated justification, it was immediately obvious the car was much better than the wagon, and combined with the assembly line established a clear and very large market. I do not see this happening with the electric car.

pocketsquare2• 9 years ago

The title now is "In praise of Tesla’s bankruptcy."

Did Tesla file for bankruptcy? I'm confused. Nikolai Tesla filed for bankruptcy in 1916.

This is phenomenally irresponsible of TechCrunch generally, and Jon Evans specifically.

jaimex22• 9 years ago

Gets the clicks.

salvar2• 9 years ago

If you read the article, or even just the beginning of it, instead of just relying on the headline then I think you'll be less confused.

nickik• 9 years ago

Missing the point.

vadimberman• 9 years ago

I am not entirely sure why Musk has to be the CEO there. He is a tech whiz and has his hands full, why not appoint a COO material instead to fix the P&L?

zerostar07• 9 years ago

... or cars

jaimex22• 9 years ago

I don't think Tesla or Elon have ever said their goal was to make money. Their mission statement has always been "To accelerate the adoption of sustainable transportation."

"Whenever you have an unpriced externality you can't quite rely on the market to do the right thing. So in order to have electric vehicles come sooner than they otherwise would... electric vehicles were always going to be the long-term transportation mechanism, but to make that day come sooner, you have to bridge the gap with innovation. That was the goal with Tesla is to try to serve as a catalyst to accelerate the day, the day of electric vehicles. And I think when all is said and done, I am hopeful that historians will look back on Tesla and say that Tesla advanced that by at least 10 years, which that would be a huge victory of mine... in my mind."

- https://www.youtube.com/watch?v=jpcJ3jX-2DA

It's the same with SpaceX, even though its been profitable I don't think they have ever celebrated that. They keep aiming to burn money towards getting to Mars which itself is another money pit.

I think Elon is genuine, he's actions do follow his words. He doesn't care about money, he cares about advancing humanity for the thrills and exploration.

mankash666• 9 years ago

I'm a pragmatist - Tesla has had years to prove it could eke out a profit. Everytime it hasn't met this expectation, Elon Musk has managed to change the conversation to something forward looking, pie in the sky BS. And surprisingly, investors bet on short term stock inflation based on these fables, probably fully knowing they aren't achieveable.

At this point they're betting on stock movements triggered by Musk, not company fundamentals. It's Vegas glorified

greglindahl4• 9 years ago

I'm always surprised by the number of people on Hacker News who want to complain that Tesla is acting like a startup trying to "go big or go home".

irhd• 9 years ago

The purpose of Tesla is not to make money

Yes it is. It is a publicly traded company. if that's not Musk's purpose then he should (rightfully) be forced out and replaced with someone who has the right view.

Then he should pay his PR people a massive bonus.

The purpose of Tesla is not to make money

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