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Tesla may need cash to deliver on the Model 3: Analysts

55 points by protomyth 11y ago

xiphias 11y ago
Sure, it probably won't get profitable, as Tesla expected less preorders. Investors don't have a problem with that. The only thing that matters now is whether Tesla can build a great car profitably and cheaply in high amount, not cash-flow.
- mtgx 11y ago
  I think all of Tesla's cars are profitable, and Model 3 will probably be even more so thanks to all the software "upgrades" Tesla will likely charge for. The "problem" is Tesla is trying to become the GM or VW of EVs before GM or VW get a chance to use their massive cash cows to dominate the market. So they're trying to cover the market with as many different models as their financials allow them, as well as trying to build the SuperCharger infrastructure globally. All of that R&D and infrastructure costs a lot of money and it has to come from somewhere -> current cars' profits. To make things even simpler to understand, Tesla will operate on an Amazon model of not giving a damn about quarterly profits for the next decade or two, while building the biggest (Tesla-only) fast-charger network in the world (huge competitive advantage) and at the same time trying to grow as a company as fast as possible and entrench itself in the car market as the Apple of EVs. Oh, and almost forgot about the whole Gigafactory thing. And one of those isn't even going to be enough by 2020 (don't forget it also has to make PowerWall batteries). That alone cost $5 billion and Tesla couldn't even build it all itself (just goes to show how much money Tesla needs to invest in its future, not pay dividends or brag about its 30%+ profits every quarter).
  - ars 11y ago
    I suspect that they're going to run out of lithium (or at least run out of affordable lithium) before they can accomplish this goal. Electric cars are not the future, there just isn't enough lithium on earth to do this. The US might be able to, but not worldwide. Powerwall is definitely not ever going to get off the ground - cars are more profitable, and they will never have enough extra supply to shunt some to powerwall.
    - aerovistae 11y ago
      I feel like Elon Musk is generally well-informed and thinks pretty far into the future. While I don't know the answer myself, I am inclined to think that Elon's not just planning on running the company straight into a widely foreseeable dead-end. Seems unlikely, don't you think? Like, imagine this interview: Interviewer: What is your plan for when lithium reserves run out? Elon: Wait, what? There's a limited supply? Hold on, need to google this. Take 2: Interviewer: What is your plan for when lithium reserves run out? Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get there. (Has he EVER given an answer like that, politician-style? No. Never.) Seems like a safe bet that this imagined problem has a solution which hasn't been shared with us because nobody's asked him.
      - ars 11y ago
        > Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get there. Why do you think this is wrong? He'll have many years to figure this out - this is a longterm problem, not a short term one. It's not like you can't do the math yourself on global extractable lithium supply, and how many cars you can make with it. I'm betting, not on new battery technology (any element except the big 10[0] would run into the same problem), but rather on a new engine that can burn very clean synthetic hydrocarbon fuel. But if I did have to do research on battery tech today it would be on an aluminum ion battery. [0] https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth's_crust https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth... [1] https://en.wikipedia.org/wiki/Aluminium-ion_battery https://en.wikipedia.org/wiki/Aluminium-ion_battery
        tamana 11y ago
        Of someone discovered a clean synthetic CHEAP hydrocarbon fuel, they could burn it and put it on the grid to feed electric cars.
        ars 11y ago
        I know I said fuel, but it's not really a fuel. The synthetic hydrocarbon would be energy storage. The energy source would be something else - nuclear or solar thermal probably.
CapitalistCartr 11y ago
Like Tesla will have any trouble raising cash. Too many people would line up to throw cash at them. They're the new Apple.
- wmeredith 11y ago
  I had the same thought. Serious question: why WOULDN'T you give this company money?
  - chx 11y ago
    There's always risk. The biggest risk I can think of is a battery invention completely disrupting the industry and making the Gigafactory obsolete. Losing a few billion dollars (I am not sure how much Panasonic invests of the reported 5B figure) would be a gigantic blow. Now, how likely such a thing is? Beyond the bombastic media reports, not at all likely but it exists. There are quite a few companies and university teams chasing this particular Holy Grail. For example, Graphenano claims they will ship graphene batteries this year.
    - aerovistae 11y ago
      This entire comment makes less sense than a llama driving a taxi. This "biggest risk" you've named is....entirely fantastical. A battery invention making the Gigafactory obsolete? What? 1. What kind of invention are we talking here? A new battery that stores 100,000mi per charge, is lightweight (magically), and charges in 10 seconds? Great, then the Gigafactory can start manufacturing that instead. It wouldn't be obsolete. 2. Even if such a thing as #1 were invented, great, now Tesla's product is infinitely more compelling. They'll sell that many more cars. The car now has enormous range and charges very quickly. This is a bad thing? What?? 3. Even if #1 were invented and somehow intellectual property'd out of Tesla's reach, how's it going to hurt them? Are we imagining one of their competitors magically coming up with this, and conjuring an equally compelling but superior car out of thin air, using technology Tesla has no access to? That's an incredible turnaround time, this new tech being revealed AND reaching mass production AND having a car designed around it which ALSO reaches mass production...all before 2017. Incredible! Unheard of! 4. #1 is a joke. That won't happen, can't happen, has never happened. New revolutionary hardware technologies don't just appear. They gradually work their way into society, and it takes a lot of time before methods are found to cheaply mass produce new hardware technologies. Given that your "biggest risk" is an absurdist fantasy, I think we can safely say Tesla's in a good position!
Sam_Odio 11y ago
The article itself (despite the sensationalist title) is not extremely insightful - investors aren't expecting an auto-manufacturing startup to be cash-flow positive while quickly scaling production. In addition the content at times even contradicts the title... "RBC analyst Joseph Spak, who has a $180 price target, said strong initial orders for the Model 3 could help Tesla achieve positive free cash flow" ... "In February, the company said it expected to be cash-flow positive in March." A more accurate title might be: "High Model 3 demand poses growth challenges and an increased need for capital."
- ams6110 11y ago
  Preorders are also not binding. Depending how long it takes, impatient customers or those who need a new car sooner could look at alternatives. By the time the Model 3 goes into production, it could face stiff competition from several entrants. The Model 3 might not have a lot of competition today, but it likely will in a few years time and it remains to be seen how many of the preorder customers will stick with their decision if/when other choices are available.
  - aerovistae 11y ago
    This has always been the most laughable thing for me. Stiff competition. As if anyone is likely to come up with a car this compelling in the same time frame. Like some mass-produced awesome car is just going to appear out of nowhere. Yes, the big manufacturers have some things like the Bolt in the works. Have you seen it? It's pretty meh. You wouldn't expect any of them to rack up hundreds of thousands of pre-orders before anyone's even gotten their hands on the car in person, non-binding or not. Yet somehow all these internet analysts seem to think somehow all this incredible passion for the Model 3 will just magically fade away in favor of the exceptionally meh cars released by Chevy and Nissan and others. That's just not how things work. People have waited 12 years for this, you don't think they can wait two more? I swear to god, even after Tesla is selling 10 million cars per year, you're still going to have people sitting here saying "But can they keep it going? Here comes the Tesla-killer~" Extreme analogy, I know, but reminds me of Holocaust denialism. Some people are just determined to see past all available evidence to focus on one outcome which suits their personal biases.
jordache 11y ago
i wonder how their support/service model will scale to model 3's volume. also curious to see if the model 3 will represent greater reliability for their vehicles... Current level of reliability + current service model @ model 3's volume == nightmarish owner experience.
- vvanders 11y ago
  True Delta has been showing pretty significant gains in reliability in 2014+ models. Anecdotally currently at 26k with zero issues.
- cmurf 11y ago
  Including maintenance. Model S is $400 and $700 for the 1st and 2nd years. I know of no mass market car in the ~$35k price range with such high maintenance. Will the car get 10 years of software bug/security updates? 20 years? What sort of after market modifications will be allowed? Will 3rd party maintenance be permitted?
  - gambiting 11y ago
    The worst thing is that Tesla can at any point decide your vehicle is no longer fit for use and disable it completely. They already do that in case of accidents - the car is completely disabled until you bring it to a Tesla dealership where it has to pass their standards to be reactivated.
    - tamana 11y ago
      Ultimately that is an issue for car insurance and an extended Warranty form Tesla.
      - cmurf 11y ago
        The extended warranty is 4 years after the included 4 years. That's 8 years. There's presently no option beyond 8 years. At the moment, Tesla literally owns the keys to the car in the form of activation, and at the moment there's no way to know what 3rd party parts or repairs are acceptable. It's also unknown what happens if a significant software problem is found after 8 years, whether there will be a software upgrade service beyond 8 years and what that will cost. In theory the car could cost less than a regular car, but a huge part of the reason why specific traditional model cars end up being inexpensively and safely maintained is the wide availability of service parts and manuals. None of that is true yet for Tesla. That's workable for a unique high end vehicle, I don't think it is for mass market.
pavlov 11y ago
Barclays analyst Brian Johnson, with a bearish $165 price target, believes the surge of Model 3 reservations - each accompanied by a refundable $1,000 deposit - could reach 300,000 by the end of June. Heh. Elon Musk tweeted earlier today that they already had 276k reservations by the end of Saturday. So Tesla may reach this analyst's "end of June" target tonight.
- aerovistae 11y ago
  These analysts always make me laugh. Their "insights" are just random guesses picked out of a hat. "Maybe THIS will happen! Then again, maybe it won't!" And they're proved wrong, over and over and over, but they keep at it. What are their credentials? Why are these people writing headlines?
  - Chronic51 11y ago
    People keep clicking the links
  - nerdy 11y ago
    Analysts, meteorologists, and software estimates are mostly well-meaning but never to be completely trusted.
    - aerovistae 11y ago
      Well said.
    - mschuster91 11y ago
      At least meteorology is based upon solid, "predictable" science instead of buzzword bingo speak from stock analysts and 90% of IT consultants ;)
      - jsjohnst 11y ago
        while I get and agree with your point, I find many meteorologists have about the same accuracy of prediction as the other two groups.
alkonaut 11y ago
Are there any plans for models after the Model3? Feels like we have been waiting for the "affordable model" for years and now that it's here there are no rumors for future models, correct? I'd kill for a practical family wagon (I consider the Model X as being too small and without good storage, and the S as being just too expensive). The Model3 has nice looks, but it's pretty compact and it's a sedan so a complete no go . The VW GTE wagons are perfect but they are hybrids. I suppose they will be fully electric soon, the question is how long it will take before VW and others have a similar price for batteries as Tesla?
- agumonkey 11y ago
  Maybe an Apple structure. 3 models over the cover the market / price spectrum, updated every N years.
- camwest 11y ago
  What do you mean? The Model X is bigger than the Model S and more expensive.
  - alkonaut 11y ago
    I haven't seen the Model X in the flesh yet, but I got the impression that storage was only medium-crossover and not big-ass SUV volume (especially with the lack of roof storage). I could be wrong though. But either way, as you point out it's in the same price range as the S so it's way too expensive anyway.
  - scurvy 11y ago
    I've seen a test version of the Model X driving around San Francisco. Its looks are pretty retch. I'm not going to say it will be a flop, but its sales won't be anything close to the 3 nor S. If they're smart, they'll cancel it in year 3.
- tamana 11y ago
  What do you mean, similar price? Tesla's car batteries aren't special, their motors and software are.
massemphasis 11y ago
This seems smart, there doesn't seem to be too much wrong with opening the door to investors. Once the investors start supporting the Tesla M3 and EV entry luxury cars, they will be also interested in investing in the infrastructure to support these kinds of solutions. If sales and orders continue rising, and he requires investments, then he's already hooked in investors. Tesla might just prove themselves to be the gateway to a new infrastructure model.
kylehotchkiss 11y ago
Would it be difficult to get venture debt with 10bil in prospective sales in the pipeline?

55 points by protomyth 11y ago

Sure, it probably won't get profitable, as Tesla expected less preorders. Investors don't have a problem with that. The only thing that matters now is whether Tesla can build a great car profitably and cheaply in high amount, not cash-flow.

mtgx 11y ago
I think all of Tesla's cars are profitable, and Model 3 will probably be even more so thanks to all the software "upgrades" Tesla will likely charge for. The "problem" is Tesla is trying to become the GM or VW of EVs before GM or VW get a chance to use their massive cash cows to dominate the market. So they're trying to cover the market with as many different models as their financials allow them, as well as trying to build the SuperCharger infrastructure globally. All of that R&D and infrastructure costs a lot of money and it has to come from somewhere -> current cars' profits. To make things even simpler to understand, Tesla will operate on an Amazon model of not giving a damn about quarterly profits for the next decade or two, while building the biggest (Tesla-only) fast-charger network in the world (huge competitive advantage) and at the same time trying to grow as a company as fast as possible and entrench itself in the car market as the Apple of EVs. Oh, and almost forgot about the whole Gigafactory thing. And one of those isn't even going to be enough by 2020 (don't forget it also has to make PowerWall batteries). That alone cost $5 billion and Tesla couldn't even build it all itself (just goes to show how much money Tesla needs to invest in its future, not pay dividends or brag about its 30%+ profits every quarter).
- ars 11y ago
  I suspect that they're going to run out of lithium (or at least run out of affordable lithium) before they can accomplish this goal. Electric cars are not the future, there just isn't enough lithium on earth to do this. The US might be able to, but not worldwide. Powerwall is definitely not ever going to get off the ground - cars are more profitable, and they will never have enough extra supply to shunt some to powerwall.
  - aerovistae 11y ago
    I feel like Elon Musk is generally well-informed and thinks pretty far into the future. While I don't know the answer myself, I am inclined to think that Elon's not just planning on running the company straight into a widely foreseeable dead-end. Seems unlikely, don't you think? Like, imagine this interview: Interviewer: What is your plan for when lithium reserves run out? Elon: Wait, what? There's a limited supply? Hold on, need to google this. Take 2: Interviewer: What is your plan for when lithium reserves run out? Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get there. (Has he EVER given an answer like that, politician-style? No. Never.) Seems like a safe bet that this imagined problem has a solution which hasn't been shared with us because nobody's asked him.
    - ars 11y ago
      > Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get there. Why do you think this is wrong? He'll have many years to figure this out - this is a longterm problem, not a short term one. It's not like you can't do the math yourself on global extractable lithium supply, and how many cars you can make with it. I'm betting, not on new battery technology (any element except the big 10[0] would run into the same problem), but rather on a new engine that can burn very clean synthetic hydrocarbon fuel. But if I did have to do research on battery tech today it would be on an aluminum ion battery. [0] https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth's_crust https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth... [1] https://en.wikipedia.org/wiki/Aluminium-ion_battery https://en.wikipedia.org/wiki/Aluminium-ion_battery
      - tamana 11y ago
        Of someone discovered a clean synthetic CHEAP hydrocarbon fuel, they could burn it and put it on the grid to feed electric cars.
        ars 11y ago
        I know I said fuel, but it's not really a fuel. The synthetic hydrocarbon would be energy storage. The energy source would be something else - nuclear or solar thermal probably.

CapitalistCartr 11y ago

Like Tesla will have any trouble raising cash. Too many people would line up to throw cash at them. They're the new Apple.

wmeredith 11y ago
I had the same thought. Serious question: why WOULDN'T you give this company money?
- chx 11y ago
  There's always risk. The biggest risk I can think of is a battery invention completely disrupting the industry and making the Gigafactory obsolete. Losing a few billion dollars (I am not sure how much Panasonic invests of the reported 5B figure) would be a gigantic blow. Now, how likely such a thing is? Beyond the bombastic media reports, not at all likely but it exists. There are quite a few companies and university teams chasing this particular Holy Grail. For example, Graphenano claims they will ship graphene batteries this year.
  - aerovistae 11y ago
    This entire comment makes less sense than a llama driving a taxi. This "biggest risk" you've named is....entirely fantastical. A battery invention making the Gigafactory obsolete? What? 1. What kind of invention are we talking here? A new battery that stores 100,000mi per charge, is lightweight (magically), and charges in 10 seconds? Great, then the Gigafactory can start manufacturing that instead. It wouldn't be obsolete. 2. Even if such a thing as #1 were invented, great, now Tesla's product is infinitely more compelling. They'll sell that many more cars. The car now has enormous range and charges very quickly. This is a bad thing? What?? 3. Even if #1 were invented and somehow intellectual property'd out of Tesla's reach, how's it going to hurt them? Are we imagining one of their competitors magically coming up with this, and conjuring an equally compelling but superior car out of thin air, using technology Tesla has no access to? That's an incredible turnaround time, this new tech being revealed AND reaching mass production AND having a car designed around it which ALSO reaches mass production...all before 2017. Incredible! Unheard of! 4. #1 is a joke. That won't happen, can't happen, has never happened. New revolutionary hardware technologies don't just appear. They gradually work their way into society, and it takes a lot of time before methods are found to cheaply mass produce new hardware technologies. Given that your "biggest risk" is an absurdist fantasy, I think we can safely say Tesla's in a good position!

Sam_Odio 11y ago

The article itself (despite the sensationalist title) is not extremely insightful - investors aren't expecting an auto-manufacturing startup to be cash-flow positive while quickly scaling production. In addition the content at times even contradicts the title... "RBC analyst Joseph Spak, who has a $180 price target, said strong initial orders for the Model 3 could help Tesla achieve positive free cash flow" ... "In February, the company said it expected to be cash-flow positive in March." A more accurate title might be: "High Model 3 demand poses growth challenges and an increased need for capital."

ams6110 11y ago
Preorders are also not binding. Depending how long it takes, impatient customers or those who need a new car sooner could look at alternatives. By the time the Model 3 goes into production, it could face stiff competition from several entrants. The Model 3 might not have a lot of competition today, but it likely will in a few years time and it remains to be seen how many of the preorder customers will stick with their decision if/when other choices are available.
- aerovistae 11y ago
  This has always been the most laughable thing for me. Stiff competition. As if anyone is likely to come up with a car this compelling in the same time frame. Like some mass-produced awesome car is just going to appear out of nowhere. Yes, the big manufacturers have some things like the Bolt in the works. Have you seen it? It's pretty meh. You wouldn't expect any of them to rack up hundreds of thousands of pre-orders before anyone's even gotten their hands on the car in person, non-binding or not. Yet somehow all these internet analysts seem to think somehow all this incredible passion for the Model 3 will just magically fade away in favor of the exceptionally meh cars released by Chevy and Nissan and others. That's just not how things work. People have waited 12 years for this, you don't think they can wait two more? I swear to god, even after Tesla is selling 10 million cars per year, you're still going to have people sitting here saying "But can they keep it going? Here comes the Tesla-killer~" Extreme analogy, I know, but reminds me of Holocaust denialism. Some people are just determined to see past all available evidence to focus on one outcome which suits their personal biases.

jordache 11y ago

i wonder how their support/service model will scale to model 3's volume. also curious to see if the model 3 will represent greater reliability for their vehicles... Current level of reliability + current service model @ model 3's volume == nightmarish owner experience.

vvanders 11y ago
True Delta has been showing pretty significant gains in reliability in 2014+ models. Anecdotally currently at 26k with zero issues.
cmurf 11y ago
Including maintenance. Model S is $400 and $700 for the 1st and 2nd years. I know of no mass market car in the ~$35k price range with such high maintenance. Will the car get 10 years of software bug/security updates? 20 years? What sort of after market modifications will be allowed? Will 3rd party maintenance be permitted?
- gambiting 11y ago
  The worst thing is that Tesla can at any point decide your vehicle is no longer fit for use and disable it completely. They already do that in case of accidents - the car is completely disabled until you bring it to a Tesla dealership where it has to pass their standards to be reactivated.
  - tamana 11y ago
    Ultimately that is an issue for car insurance and an extended Warranty form Tesla.
    - cmurf 11y ago
      The extended warranty is 4 years after the included 4 years. That's 8 years. There's presently no option beyond 8 years. At the moment, Tesla literally owns the keys to the car in the form of activation, and at the moment there's no way to know what 3rd party parts or repairs are acceptable. It's also unknown what happens if a significant software problem is found after 8 years, whether there will be a software upgrade service beyond 8 years and what that will cost. In theory the car could cost less than a regular car, but a huge part of the reason why specific traditional model cars end up being inexpensively and safely maintained is the wide availability of service parts and manuals. None of that is true yet for Tesla. That's workable for a unique high end vehicle, I don't think it is for mass market.

pavlov 11y ago

Barclays analyst Brian Johnson, with a bearish $165 price target, believes the surge of Model 3 reservations - each accompanied by a refundable $1,000 deposit - could reach 300,000 by the end of June. Heh. Elon Musk tweeted earlier today that they already had 276k reservations by the end of Saturday. So Tesla may reach this analyst's "end of June" target tonight.

aerovistae 11y ago
These analysts always make me laugh. Their "insights" are just random guesses picked out of a hat. "Maybe THIS will happen! Then again, maybe it won't!" And they're proved wrong, over and over and over, but they keep at it. What are their credentials? Why are these people writing headlines?
- Chronic51 11y ago
  People keep clicking the links
- nerdy 11y ago
  Analysts, meteorologists, and software estimates are mostly well-meaning but never to be completely trusted.
  - aerovistae 11y ago
    Well said.
  - mschuster91 11y ago
    At least meteorology is based upon solid, "predictable" science instead of buzzword bingo speak from stock analysts and 90% of IT consultants ;)
    - jsjohnst 11y ago
      while I get and agree with your point, I find many meteorologists have about the same accuracy of prediction as the other two groups.

alkonaut 11y ago

Are there any plans for models after the Model3? Feels like we have been waiting for the "affordable model" for years and now that it's here there are no rumors for future models, correct? I'd kill for a practical family wagon (I consider the Model X as being too small and without good storage, and the S as being just too expensive). The Model3 has nice looks, but it's pretty compact and it's a sedan so a complete no go . The VW GTE wagons are perfect but they are hybrids. I suppose they will be fully electric soon, the question is how long it will take before VW and others have a similar price for batteries as Tesla?

agumonkey 11y ago
Maybe an Apple structure. 3 models over the cover the market / price spectrum, updated every N years.
camwest 11y ago
What do you mean? The Model X is bigger than the Model S and more expensive.
- alkonaut 11y ago
  I haven't seen the Model X in the flesh yet, but I got the impression that storage was only medium-crossover and not big-ass SUV volume (especially with the lack of roof storage). I could be wrong though. But either way, as you point out it's in the same price range as the S so it's way too expensive anyway.
- scurvy 11y ago
  I've seen a test version of the Model X driving around San Francisco. Its looks are pretty retch. I'm not going to say it will be a flop, but its sales won't be anything close to the 3 nor S. If they're smart, they'll cancel it in year 3.
tamana 11y ago
What do you mean, similar price? Tesla's car batteries aren't special, their motors and software are.

massemphasis 11y ago

This seems smart, there doesn't seem to be too much wrong with opening the door to investors. Once the investors start supporting the Tesla M3 and EV entry luxury cars, they will be also interested in investing in the infrastructure to support these kinds of solutions. If sales and orders continue rising, and he requires investments, then he's already hooked in investors. Tesla might just prove themselves to be the gateway to a new infrastructure model.

kylehotchkiss 11y ago

Would it be difficult to get venture debt with 10bil in prospective sales in the pipeline?