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Tesla is burning through massive amounts of cash. They are debt-laden and don't have plans of being profitable until 2020 at the very least, if that's even pos

Tesla is burning through massive amounts of cash. They are debt-laden and don't have plans of being profitable until 2020 at the very least, if that's even possible. They need to keep issuing debt in order to stay afloat, so their financial position is tenuous. If anything goes wrong in their execution, they will go bankrupt, so it's a high risk venture to say the least.

aerovistae 11y ago
This is such a skewed portrait I would've thought you were looking through a fisheye lens. You're making it sound as if Tesla is riding the edge of bankruptcy, and Elon Musk is up late fretting over spreadsheets wondering where he'll find the money to make payroll. On the contrary to your unsourced assertion that they won't be profitable until 2020, he just said in the last quarterly investors' call that Tesla was likely to be profitable this year. [1] As for "burning through massive amounts of cash," again you're making it sound like money is just slipping through their fingers with no return. This is such a misleading sentence on its own. Yes, they have enormous capital expenditures because they're doing something extremely difficult that requires the construction of enormous facilities and requires immense amounts of engineering work. And by all accounts, given that they're now selling about 50,000 cards a year (sorry, how many were they selling two years ago? four years ago? looks like the number is going up) and given the reviews of the S and the X, they're doing a superb job delivering results from those expenditures. Their expenditures are not "out of control" nor unplanned-- they're spending exactly what they need to in order to accomplish a near-impossible goal. Given where they've gone from 2009 to 2016, you think that between now and 2020 it's all going to collapse in on itself, the Model 3 will reveal itself to be a poorly designed flop that few will buy, or they'll find themselves unable to actually manufacture it? Where exactly are you seeing evidence of a downward trend or a failure waiting to happen? You sound like one of those people on the radio that proclaim apocalyptic double-meaning in random numbers they've taken out of the Bible. [1] http://www.reuters.com/article/us-tesla-results-idUSKCN0VJ2J6 http://www.reuters.com/article/us-tesla-results-idUSKCN0VJ2J...
- rjdagost 11y ago
  Keep a few things in mind about Musk's prediction of profitability. First, he is talking about non-GAAP profitability for this year. He doesn't predict true GAAP profitability for a few more years, maybe by 2020. Second, he has blown many previous predictions about achieving profitability and being cash flow positive, so many investors are rightfully skeptical about this new prediction as well.
  - aerovistae 11y ago
    You are quite right, and this is by design. I believe all the evidence points to this not mattering any more than Amazon's profitability has mattered. Tesla has its eye on something bigger and longer term than narrow early quarterly profits. In the meantime, Elon is indeed saying whatever he has to to keep investors from losing their shit with impatience over a startup that's been working for over a decade without having transformed the world yet-- they've grown too accustomed to Dropbox's and Facebooks. If he let them speculate wildly without occasionally throwing them a bone, he would end up with a feedback cycle of bad press for no reason-- an analyst would downgrade Tesla for [some reason], a hundred articles would be written with titles like "Is this the end of Tesla?", and the cycle repeats. This is what he's keeping at bay while they prepare their grand slam.
- FireBeyond 11y ago
  "Given where they've gone from 2009 to 2016, you think that between now and 2020 it's all going to collapse in on itself, the Model 3 will reveal itself to be a poorly designed flop that few will buy, or they'll find themselves unable to actually manufacture it? Where exactly are you seeing evidence of a downward trend or a failure waiting to happen?" Whereas in contrast you're considering evidence of Tesla's somewhat success in the high end market as an ironclad guarantee that it's not possible that the 3 could be a flop in a -vastly- different market.
  - aerovistae 11y ago
    I think "somewhat success" is a vast understatement as they're outselling all competing vehicles. That would be impressive for a new ICE manufacturer, but to have successfully created the technical and team infrastructure to make this possible is astonishing-- the service stations across the nation, a massive supercharging network, home delivery service nationally, etc. I personally do believe their success is assured-- their success thus far combined with Elon's past and simultaneous other accomplishments seem to me as the very definition of ironclad evidence that this man achieves what he sets out to do. I just can't picture headlines in 5 years reading "How the man who landed the first rockets failed the auto industry." It just seems far-fetched. And I don't think the market is as vastly different as you believe. At both levels you have people with money who want something shiny. And there are more people with $40k than there are people with $90k. Time will tell.
omonra 11y ago
http://www.fool.com/investing/general/2016/01/29/will-tesla-motors-inc-become-free-cash-flow-positi.aspx http://www.fool.com/investing/general/2016/01/29/will-tesla-... says that they plan to be cashflow positive by Q3 this year. http://www.forbes.com/sites/greatspeculations/2016/02/11/tesla-reports-positive-cash-flow-in-core-operations-but-ancillary-expenditures-continue-to-mount/#311856d91e65 http://www.forbes.com/sites/greatspeculations/2016/02/11/tes... says that they are cashflow positive in "core operations related to the Model S. Which can be defined as the production and distribution of the vehicle, and sales of the premium sedan to its leasing partners. This excludes costs incurred in the build out of service centers, production facilities, stores and charging stations."
adventured 11y ago
While a criticism of their debt is fair, they are clearly not debt-laden (heavily weighed down by it). Tesla has $2 billion in long-term debt. Today's corporate debt is generally the cheapest corporate debt in world history. Stacked against $1.2 billion in cash, and the ability to dilute to raise more cash at will, as the market is still giving them a $30 billion valuation. That $2 billion in debt is trivial to manage. It would have to be $10+ billion for them to be close to debt-laden, and even then with debt costs as they are, they could deal with it.
- pfarnsworth 11y ago
  It's not trivial when they are as massively cash-flow negative as they are today. What I heard is that they are having a harder time raising money, they can't issue more convertible bonds, and they can't go to the markets again for another secondary. They need to start collateralizing their factories and other assets to get more money to pay for their gigafactory, etc. If they hit on all cylinders they might survive, but if anything goes wrong in the next few years, they could very well topple under their debt. I heard that they have only sold about 1000 Model X's and are still working out the kinks. They needed 3 years for the Model S to be free from problems, so expect at least that much, not including the huge piece of glass used in the Model X.

aerovistae 11y ago

This is such a skewed portrait I would've thought you were looking through a fisheye lens. You're making it sound as if Tesla is riding the edge of bankruptcy, and Elon Musk is up late fretting over spreadsheets wondering where he'll find the money to make payroll. On the contrary to your unsourced assertion that they won't be profitable until 2020, he just said in the last quarterly investors' call that Tesla was likely to be profitable this year. [1] As for "burning through massive amounts of cash," again you're making it sound like money is just slipping through their fingers with no return. This is such a misleading sentence on its own. Yes, they have enormous capital expenditures because they're doing something extremely difficult that requires the construction of enormous facilities and requires immense amounts of engineering work. And by all accounts, given that they're now selling about 50,000 cards a year (sorry, how many were they selling two years ago? four years ago? looks like the number is going up) and given the reviews of the S and the X, they're doing a superb job delivering results from those expenditures. Their expenditures are not "out of control" nor unplanned-- they're spending exactly what they need to in order to accomplish a near-impossible goal. Given where they've gone from 2009 to 2016, you think that between now and 2020 it's all going to collapse in on itself, the Model 3 will reveal itself to be a poorly designed flop that few will buy, or they'll find themselves unable to actually manufacture it? Where exactly are you seeing evidence of a downward trend or a failure waiting to happen? You sound like one of those people on the radio that proclaim apocalyptic double-meaning in random numbers they've taken out of the Bible. [1] http://www.reuters.com/article/us-tesla-results-idUSKCN0VJ2J6 http://www.reuters.com/article/us-tesla-results-idUSKCN0VJ2J...

rjdagost 11y ago
Keep a few things in mind about Musk's prediction of profitability. First, he is talking about non-GAAP profitability for this year. He doesn't predict true GAAP profitability for a few more years, maybe by 2020. Second, he has blown many previous predictions about achieving profitability and being cash flow positive, so many investors are rightfully skeptical about this new prediction as well.
- aerovistae 11y ago
  You are quite right, and this is by design. I believe all the evidence points to this not mattering any more than Amazon's profitability has mattered. Tesla has its eye on something bigger and longer term than narrow early quarterly profits. In the meantime, Elon is indeed saying whatever he has to to keep investors from losing their shit with impatience over a startup that's been working for over a decade without having transformed the world yet-- they've grown too accustomed to Dropbox's and Facebooks. If he let them speculate wildly without occasionally throwing them a bone, he would end up with a feedback cycle of bad press for no reason-- an analyst would downgrade Tesla for [some reason], a hundred articles would be written with titles like "Is this the end of Tesla?", and the cycle repeats. This is what he's keeping at bay while they prepare their grand slam.
FireBeyond 11y ago
"Given where they've gone from 2009 to 2016, you think that between now and 2020 it's all going to collapse in on itself, the Model 3 will reveal itself to be a poorly designed flop that few will buy, or they'll find themselves unable to actually manufacture it? Where exactly are you seeing evidence of a downward trend or a failure waiting to happen?" Whereas in contrast you're considering evidence of Tesla's somewhat success in the high end market as an ironclad guarantee that it's not possible that the 3 could be a flop in a -vastly- different market.
- aerovistae 11y ago
  I think "somewhat success" is a vast understatement as they're outselling all competing vehicles. That would be impressive for a new ICE manufacturer, but to have successfully created the technical and team infrastructure to make this possible is astonishing-- the service stations across the nation, a massive supercharging network, home delivery service nationally, etc. I personally do believe their success is assured-- their success thus far combined with Elon's past and simultaneous other accomplishments seem to me as the very definition of ironclad evidence that this man achieves what he sets out to do. I just can't picture headlines in 5 years reading "How the man who landed the first rockets failed the auto industry." It just seems far-fetched. And I don't think the market is as vastly different as you believe. At both levels you have people with money who want something shiny. And there are more people with $40k than there are people with $90k. Time will tell.

omonra 11y ago

http://www.fool.com/investing/general/2016/01/29/will-tesla-motors-inc-become-free-cash-flow-positi.aspx http://www.fool.com/investing/general/2016/01/29/will-tesla-... says that they plan to be cashflow positive by Q3 this year. http://www.forbes.com/sites/greatspeculations/2016/02/11/tesla-reports-positive-cash-flow-in-core-operations-but-ancillary-expenditures-continue-to-mount/#311856d91e65 http://www.forbes.com/sites/greatspeculations/2016/02/11/tes... says that they are cashflow positive in "core operations related to the Model S. Which can be defined as the production and distribution of the vehicle, and sales of the premium sedan to its leasing partners. This excludes costs incurred in the build out of service centers, production facilities, stores and charging stations."

adventured 11y ago

While a criticism of their debt is fair, they are clearly not debt-laden (heavily weighed down by it). Tesla has $2 billion in long-term debt. Today's corporate debt is generally the cheapest corporate debt in world history. Stacked against $1.2 billion in cash, and the ability to dilute to raise more cash at will, as the market is still giving them a $30 billion valuation. That $2 billion in debt is trivial to manage. It would have to be $10+ billion for them to be close to debt-laden, and even then with debt costs as they are, they could deal with it.

pfarnsworth 11y ago
It's not trivial when they are as massively cash-flow negative as they are today. What I heard is that they are having a harder time raising money, they can't issue more convertible bonds, and they can't go to the markets again for another secondary. They need to start collateralizing their factories and other assets to get more money to pay for their gigafactory, etc. If they hit on all cylinders they might survive, but if anything goes wrong in the next few years, they could very well topple under their debt. I heard that they have only sold about 1000 Model X's and are still working out the kinks. They needed 3 years for the Model S to be free from problems, so expect at least that much, not including the huge piece of glass used in the Model X.