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Why do people keep spouting this nonsense that Tesla is losing money on EVERY car? They make money on every car otherwise they wouldn't be selling any cars. The

Why do people keep spouting this nonsense that Tesla is losing money on EVERY car? They make money on every car otherwise they wouldn't be selling any cars. The lose money due to their high R&D.

chrisper 10y ago
Do they not lose money per car if you factor in the R&D?
- mikeash 10y ago
  Revenue minus costs might be negative, but phrasing it as "lose money per car" is highly misleading. The pertinent question is, if they sell more cars, what happens to their finances? Most people interpret "lose money per car" to mean that additional sales results in additional financial losses. If each car is profitable but you haven't yet made back your R&D then each additional sale improves your financial picture and brings you closer to profitability.
  - blakeyrat 10y ago
    I wonder if they report the same way when, say, Boeing introduces a new airliner. I mean by that logic, each Dreamliner sold "lost" millions...
- basseq 10y ago
  "Unit Profit" vs. "Business Profit". Yes, if you factor in the R&D they "lost money per car", but at scale, they would make money per car. If your unit cost is $50 and your unit revenue is $100, your unit profit is $50. If you sell 100,000 units, your business revenue is is $10M. If you spend $10M on R&D (and other overhead), your business costs are $15M and your business profit is -$5M. BUT, if you sell 1M units, your revenue is $100M, your costs are $60M ($50M unit + $10M R&D), and your profit is $40M. That's the power of scale. (Compare this to a business with a negative unit profit: it won't scale no matter what you do.)
  - Gibbon1 10y ago
    Exactly. Also there is the learning curve, as you scale up your unit cost drops. Would not be out of line to assume going from 100k units to 1M units for your unit cost to drop 30%. So $50/unit becomes $35/unit. $100M revenue - ($35M + $10M) ==> $55M profit.
- make3 10y ago
  losing money per car usually means that the more cars you sell the less money you have, not that overall you haven't sold a high enough number of cars to make a profit on your overall investment
- oh_sigh 10y ago
  The difference is that R&D spends money, and car sales make money. So for every incremental car you sell, you make money(or - lose less money). Tesla would lose money per car if, for example, the raw materials cost more money than they were selling it for (this is not the case)
GreenPlastic 10y ago
and CapEx
kgwgk 10y ago
> The lose money due to their high R&D. Actually they would be losing money even if the R&D line was zero.
- xenadu02 10y ago
  What people mean is Tesla cars are unit profitable, ex capital expenses, R&D, etc. If we assume the business is structured like most manufacturing businesses your capex, R&D, etc don't increase linearly with cars manufactured. That means at some point Tesla will cross that threshold where the profit on each car is enough to cover those expenses and thus the company becomes "profitable" even on paper. There is no scenario (known at the moment) where Tesla selling more cars would lead to increased medium or long term losses. I'm a Tesla investor (from IPO) and I understand this. I knew when I bought the shares that they'd have to raise money several more times. Making cars is a capital intensive business and they've done an excellent job by making premium sporty electric vehicles to demonstrate that electric doesn't mean crap range or crap performance. Everything else is just scaling to get costs down and unit volume up. People were also crapping on Instacart for saying they were unit-profitable in many cities but that's a good sign. It means we can see a goal line in the future made of dollar bills because the business is scaling up sales faster than expenses and eventually the two lines cross. It's also how Amazon ran their business for a decade and that seems to have worked out well for them.
  - forgetsusername 10y ago
    >Everything else is just... Scaling up manufacturing is harder than building a low volume, expensive car.
- takeda 10y ago
  Could you expand on it?
  - kgwgk 10y ago
    From the latest 10-Q report [1]: - gross profit was $252mn - operating expenses were $182mn in R&D and $318mn in SG&A Even if you remove completely the "research and development" expense, the gross profit is not enough currently to cover the "selling, general and administrative" expense. [1] http://ir.teslamotors.com/secfiling.cfm?filingID=1564590-16-18886&CIK=1318605 http://ir.teslamotors.com/secfiling.cfm?filingID=1564590-16-...
xiphias 10y ago
It's harder to value fast growing companies than stable companies. Still, it would be good if Bloomberg would have an adviser who is able to value companies at least a little bit better than an average person.
encoderer 10y ago
Possibly because other auto manufacturers do include R&D in their COGS? Tesla, instead, treats it as an OpEx which to be fair, most non-automotive companies do as well. Still, it's not standard for the industry the are in. tldr: Because if Tesla did their accounting the way Toyota does, they have a negative gross margin.
- thesimpsons1022 10y ago
  tesla isn't a company like Toyota though.
  - rpgmaker 10y ago
    Yes, Toyota has solid financials.
    - toomuchtodo 10y ago
      So does Walmart (compared to Amazon). I'd still be betting on Amazon.
      - Teever 10y ago
        Why not bet on both? Why are you so dismissive of walmart?
        toomuchtodo 10y ago
        They're a just in time logistics company that uses technology, not a technology company focused on logistics. Big difference in my mind.
    - marvin 10y ago
      But does not grow its sales 40% every year.
- seanmcdirmid 10y ago
  Their losses do not increase in each unit sold, they actually go down. It is an important difference (shared by other auto companies also), so it is technically true that "they do not lose more money on each car sold."
colechristensen 10y ago
Selling at a loss is a real thing that lots of companies do and is entirely possible in Tesla's case. By this I explicitly mean the marginal cost ... that is the sale price may well be lower than the cost to make one more vehicle. They would do this strategically to build their brand, market share, to work on inefficiencies in their pipelines expecting to make it up further down the road.
- slg 10y ago
  >Selling at a loss is a real thing that lots of companies do Except products sold at a lost are almost always loss leaders designed to increase other revenue sources. It is fine to sell razors, printers, or game consoles at a loss if products like blades, ink, and games sell for a large premium. The problem is that Tesla doesn't have any other products to offer. They sell cars. You can't really expect to function in the medium to long term as a business if your only product sells for a loss.
  - r00fus 10y ago
    Explain Amazon circa 2000.
    - slg 10y ago
      There is a big difference between not being profitable as a business by either reinvesting revenue or using loss leaders to grow market share and losing money on every single product you sell.
      - thephyber 10y ago
        It's been part of Tesla's business model to progressively build cheaper products in progressively larger quantities. Also, Tesla is still building the world's largest battery factory. "Reinvesting revenue into capital improvements" seems to parallel Amazon's early-2000s growth fairly well.
adventured 10y ago
> The lose money due to their high R&D. Fiscal 2015 - Research & Development: $717 million Net loss: $888 million First quarter 2016 - R&D: $182 million Net loss: $282 million If their R&D was $0, they'd still be losing lots of money.
- marricks 10y ago
  It's almost as if they're also spending millions outfitting a new factory and new production lines for future products and expanding building capacity for current ones...
  - forgetsusername 10y ago
    Do you think this expenditure simply ends one day? Car manufacturing is incredibly capital intensive.
    - marricks 10y ago
      Course not, but there is a difference between financing linear/slow growth and exponential growth.
forgetsusername 10y ago
I'd recommend you read their financial statements.
Splines 10y ago
Not entirely. Total Revenue: 4,046,024 Cost of Revenue: 3,122,521 Gross Profit: 923,503 R&D: 717,900 Selling, General, & Administrative: 922,232 Total OpEx: 1,640,132 Loss from Operations: (716,629) /* snip some other line items */ Net Loss: 888,663 http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=11165155&RcvdDate=2/10/2016&CoName=TESLA%20MOTORS%20INC&FormType=8-K&View=html http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=111... So it's not all just R&D. Their revenue and cost of revenue includes their resale value guarantee and lease programs. I'm not enough of an accountant to know which way these tilt the numbers. Their resale value guarantee probably will help them maintain a high sticker price.
partiallypro 10y ago
They lose more money per quarter than they spend in R&D per quarter, so your statement is wrong. They have insane cash burn. You also have to consider they are subsidized, without those subsidies they run an even deeper loss.
johnward 10y ago
I stopped listening when I heard that. The fact that "analysts"don't understand this...

Why do people keep spouting this nonsense that Tesla is losing money on EVERY car? They make money on every car otherwise they wouldn't be selling any cars. The lose money due to their high R&D.

chrisper 10y ago

Do they not lose money per car if you factor in the R&D?

mikeash 10y ago
Revenue minus costs might be negative, but phrasing it as "lose money per car" is highly misleading. The pertinent question is, if they sell more cars, what happens to their finances? Most people interpret "lose money per car" to mean that additional sales results in additional financial losses. If each car is profitable but you haven't yet made back your R&D then each additional sale improves your financial picture and brings you closer to profitability.
- blakeyrat 10y ago
  I wonder if they report the same way when, say, Boeing introduces a new airliner. I mean by that logic, each Dreamliner sold "lost" millions...
basseq 10y ago
"Unit Profit" vs. "Business Profit". Yes, if you factor in the R&D they "lost money per car", but at scale, they would make money per car. If your unit cost is $50 and your unit revenue is $100, your unit profit is $50. If you sell 100,000 units, your business revenue is is $10M. If you spend $10M on R&D (and other overhead), your business costs are $15M and your business profit is -$5M. BUT, if you sell 1M units, your revenue is $100M, your costs are $60M ($50M unit + $10M R&D), and your profit is $40M. That's the power of scale. (Compare this to a business with a negative unit profit: it won't scale no matter what you do.)
- Gibbon1 10y ago
  Exactly. Also there is the learning curve, as you scale up your unit cost drops. Would not be out of line to assume going from 100k units to 1M units for your unit cost to drop 30%. So $50/unit becomes $35/unit. $100M revenue - ($35M + $10M) ==> $55M profit.
make3 10y ago
losing money per car usually means that the more cars you sell the less money you have, not that overall you haven't sold a high enough number of cars to make a profit on your overall investment
oh_sigh 10y ago
The difference is that R&D spends money, and car sales make money. So for every incremental car you sell, you make money(or - lose less money). Tesla would lose money per car if, for example, the raw materials cost more money than they were selling it for (this is not the case)

GreenPlastic 10y ago

and CapEx

kgwgk 10y ago

> The lose money due to their high R&D. Actually they would be losing money even if the R&D line was zero.

xenadu02 10y ago
What people mean is Tesla cars are unit profitable, ex capital expenses, R&D, etc. If we assume the business is structured like most manufacturing businesses your capex, R&D, etc don't increase linearly with cars manufactured. That means at some point Tesla will cross that threshold where the profit on each car is enough to cover those expenses and thus the company becomes "profitable" even on paper. There is no scenario (known at the moment) where Tesla selling more cars would lead to increased medium or long term losses. I'm a Tesla investor (from IPO) and I understand this. I knew when I bought the shares that they'd have to raise money several more times. Making cars is a capital intensive business and they've done an excellent job by making premium sporty electric vehicles to demonstrate that electric doesn't mean crap range or crap performance. Everything else is just scaling to get costs down and unit volume up. People were also crapping on Instacart for saying they were unit-profitable in many cities but that's a good sign. It means we can see a goal line in the future made of dollar bills because the business is scaling up sales faster than expenses and eventually the two lines cross. It's also how Amazon ran their business for a decade and that seems to have worked out well for them.
- forgetsusername 10y ago
  >Everything else is just... Scaling up manufacturing is harder than building a low volume, expensive car.
takeda 10y ago
Could you expand on it?
- kgwgk 10y ago
  From the latest 10-Q report [1]: - gross profit was $252mn - operating expenses were $182mn in R&D and $318mn in SG&A Even if you remove completely the "research and development" expense, the gross profit is not enough currently to cover the "selling, general and administrative" expense. [1] http://ir.teslamotors.com/secfiling.cfm?filingID=1564590-16-18886&CIK=1318605 http://ir.teslamotors.com/secfiling.cfm?filingID=1564590-16-...

xiphias 10y ago

It's harder to value fast growing companies than stable companies. Still, it would be good if Bloomberg would have an adviser who is able to value companies at least a little bit better than an average person.

encoderer 10y ago

Possibly because other auto manufacturers do include R&D in their COGS? Tesla, instead, treats it as an OpEx which to be fair, most non-automotive companies do as well. Still, it's not standard for the industry the are in. tldr: Because if Tesla did their accounting the way Toyota does, they have a negative gross margin.

thesimpsons1022 10y ago
tesla isn't a company like Toyota though.
- rpgmaker 10y ago
  Yes, Toyota has solid financials.
  - toomuchtodo 10y ago
    So does Walmart (compared to Amazon). I'd still be betting on Amazon.
    - Teever 10y ago
      Why not bet on both? Why are you so dismissive of walmart?
      - toomuchtodo 10y ago
        They're a just in time logistics company that uses technology, not a technology company focused on logistics. Big difference in my mind.
  - marvin 10y ago
    But does not grow its sales 40% every year.
seanmcdirmid 10y ago
Their losses do not increase in each unit sold, they actually go down. It is an important difference (shared by other auto companies also), so it is technically true that "they do not lose more money on each car sold."

colechristensen 10y ago

Selling at a loss is a real thing that lots of companies do and is entirely possible in Tesla's case. By this I explicitly mean the marginal cost ... that is the sale price may well be lower than the cost to make one more vehicle. They would do this strategically to build their brand, market share, to work on inefficiencies in their pipelines expecting to make it up further down the road.

slg 10y ago
>Selling at a loss is a real thing that lots of companies do Except products sold at a lost are almost always loss leaders designed to increase other revenue sources. It is fine to sell razors, printers, or game consoles at a loss if products like blades, ink, and games sell for a large premium. The problem is that Tesla doesn't have any other products to offer. They sell cars. You can't really expect to function in the medium to long term as a business if your only product sells for a loss.
- r00fus 10y ago
  Explain Amazon circa 2000.
  - slg 10y ago
    There is a big difference between not being profitable as a business by either reinvesting revenue or using loss leaders to grow market share and losing money on every single product you sell.
    - thephyber 10y ago
      It's been part of Tesla's business model to progressively build cheaper products in progressively larger quantities. Also, Tesla is still building the world's largest battery factory. "Reinvesting revenue into capital improvements" seems to parallel Amazon's early-2000s growth fairly well.

adventured 10y ago

> The lose money due to their high R&D. Fiscal 2015 - Research & Development: $717 million Net loss: $888 million First quarter 2016 - R&D: $182 million Net loss: $282 million If their R&D was $0, they'd still be losing lots of money.

marricks 10y ago
It's almost as if they're also spending millions outfitting a new factory and new production lines for future products and expanding building capacity for current ones...
- forgetsusername 10y ago
  Do you think this expenditure simply ends one day? Car manufacturing is incredibly capital intensive.
  - marricks 10y ago
    Course not, but there is a difference between financing linear/slow growth and exponential growth.

forgetsusername 10y ago

I'd recommend you read their financial statements.

Splines 10y ago

Not entirely. Total Revenue: 4,046,024 Cost of Revenue: 3,122,521 Gross Profit: 923,503 R&D: 717,900 Selling, General, & Administrative: 922,232 Total OpEx: 1,640,132 Loss from Operations: (716,629) /* snip some other line items */ Net Loss: 888,663 http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=11165155&RcvdDate=2/10/2016&CoName=TESLA%20MOTORS%20INC&FormType=8-K&View=html http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=111... So it's not all just R&D. Their revenue and cost of revenue includes their resale value guarantee and lease programs. I'm not enough of an accountant to know which way these tilt the numbers. Their resale value guarantee probably will help them maintain a high sticker price.

partiallypro 10y ago

They lose more money per quarter than they spend in R&D per quarter, so your statement is wrong. They have insane cash burn. You also have to consider they are subsidized, without those subsidies they run an even deeper loss.

johnward 10y ago

I stopped listening when I heard that. The fact that "analysts"don't understand this...