19 ms·

Tesla Burns Through Record Cash to Bring the Model 3 to Market

179 points by bipr0 9y ago

princekolt 9y ago
> The company burned through $1.16 billion in cash in the second quarter by spending on capacity for its cheapest model yet and boosting battery output. This makes me very happy. It's very rare for a large company to literally risk their existence to bring a new product to market. Most prefer to just sit in the pile of cash and profit from margins...
- jotjotzzz 9y ago
  I don't think it's much of a risk. They created a product that is way differentiated from every other car out there and people want to buy it. It's like seeing the iPhone for the first time, and all the other flip-phones out there is simply just not enough anymore. They will succeed. If I'm in the market for a new car, I would totally line up for this one.
  - dkrich 9y ago
    This is where I disagree with most people who are bullish on Tesla. I think there's a huge risk for Tesla that most people don't factor in- that it's very possible that most car buyers simply don't want one. The interesting thing about that is that most people seem to assume that making them at enormous scale and meeting the overwhelming demand is the only risk. What a century of observing the auto industry has taught us is that car buyers in huge percentages have fierce brand-loyalty and that anytime a new model is brought to market there's a huge uphill battle to create demand. That's not to say that lots of people won't want a Tesla, clearly there's evidence that there's a market. But it remains to be seen whether that's a niche market or the better part of the auto market. To justify the current valuation, you'd have to believe its the latter. Comparisons to the iPhone seem oversimplified. The iPhone on pretty much every metric was demonstrably better than every other phone on the market, and by a huge margin. Tesla is better on some metrics- doesn't rely on fossil fuels, has some cool technology, and is a novelty because there aren't that many of them on the road. But on most other metrics, there are lots and lots of better options. Some have more power, some are much cheaper, some have more storage space, and some simply have better brand awareness and loyalty. Again, not suggesting that they aren't developing a great product. But there are huge risks to the survival of this company beyond cash burn that I don't think people are taking into account.
    - toomuchtodo 9y ago
      The Gigafactory is specifically designed to balance vehicle and stationary storage cell production. Not enough cars selling? More batteries for utility scale energy storage. And the demand for energy storage isn't going away.
    - smokeyj 9y ago
      Tesla is the Apple equivalent for cars. Consumers see the Tesla brand as innovative and high quality regardless if it's true. Even if other manufacturers make a Tesla equivalent, that's like iPhone vs Android. It's a status thing for many, and for that alone I'd bet on the Tesla brand.
      - dkrich 9y ago
        This seems like an availability bias. Are you saying that consumers don't regard Porsche, Audi, BMW, Lexus, Mercedes and Infiniti as innovative and high quality?
    - rsync 9y ago
      "What a century of observing the auto industry has taught us is that car buyers in huge percentages have fierce brand-loyalty and that anytime a new model is brought to market there's a huge uphill battle to create demand." I think we could be at a point similar to laptop buyers in 2002/2003/2004. Remember when there were multiple companies making laptops and you would comparison shop and read reviews and look ahead to some new line of Fujitsu vs. Sony vs. Panasonic laptops and maybe visit dynamism.com and see what was being sold in Japan and so on and so forth ? And then 2-3 years later there was one laptop manufacturer: Apple. Everything else was irrelevant in the face of a solid block of metal with a glass screen that lasts 5-7 years and "just works". When was the last time you spec'd out different laptops - other than perhaps to read with mild interest about some Dell model built for Ubuntu that might possibly be an option but probably isn't. I have mixed feelings about this ... On the one hand, Apple laptops really are the best that has ever been and have largely "solved" the category. On the other hand, without any competition we get strong-armed into certain design decisions that might not work for us ... glossy screens, no more full sized USB ports, maybe headphone jack goes away ... Electric only drive, skateboard style battery platform (with dramatically lowered center of gravity) and AWD with multiple motors ... I want these innovations. But I would also like some choices in styling and design - especially since I dislike the Tesla interior design so much ...
  - lumberjack 9y ago
    >They created a product that is way differentiated from every other car out there and people want to buy it. What? The Bolt has slightly better range, and probably much better build quality. The difference in price is $2k on a base price of $30k. And if Chevy could do it, I'm positive most others can too.
    - rohit2412 9y ago
      And Renault Zoe, and BYD ev300. There are electric cars available all round the world, but somehow Tesla got the hype up that they are the only one.
      - Diederich 9y ago
        I'm a huge Elon Musk/Tesla/SpaceX fanboy, but I make it a point to reinforce this. Especially with Tesla, the hype is way, way overboard. It's not connected to reality. I say that as someone who reserved a Model 3 on the first day, and will be buying one hopefully in a few months. And I also believe the Tesla Motors will very likely become a global, major auto-maker, not based on stock price, but based on how many cars they make. I do think Teslas are either the best cars in their class or close to it. But the alternatives aren't that far behind, and there's no reason to believe they won't catch up or even surpass the Teslas. I will end by noting that I believe Elon Musk when he states his goal for Tesla: to 'push the ball forward' regarding the production and use of sustainable energy. He fully expected Tesla Motors to fail, and it nearly did. So Musk's primary goal isn't to become the largest auto maker in the world. His goal is see the vast majority of new cars being electric, whoever sells them. I think that kind of straightforward, honest and pragmatic perspective is a big piece of what drives the often rabid fanboyism, and the irrational stock price.
    - nicpottier 9y ago
      I really like the Bolt and agree as an electric vehicle it is super competitive. But can I buy a Bolt today and get self driving capabilities on the same car in a few years? That's a pretty massive pull towards the Tesla even if you consider everything else equal. You don't even have to pay for it now, you can wait it out and pay for the self driving to be activated later once you are sold, but not having to buy an entirely new car to do so is crazy. I'm hugely bullish on Tesla because they just have so many different angles to win. They have the most experience with electric, they have a massive (and fast) charging network that continues to grow, their electric cars are the priority not a hedge and as mentioned above, they are moving fast into self driving.
- samfisher83 9y ago
  I think a slower roll out would be prudent. If you burn all your cash and you are forced to raise cash it puts you in a bad situation. This is brand new car. Companies like Toyota have issues with their cars and they generally only make incremental changes to each model, and Toyota Production System is probably one of most taught and studied system for production.
  - dev1n 9y ago
    If you haven't seen a review on the model 3 I highly suggest MKBHD's review. He goes over how a lot of pieces of a standard car are stripped out (I.e. No physical buttons) this was to reduce manufacturing complexity and increase production speed. Toyota does not build cars like the way Tesla has engineered this end to end.
    - maxerickson 9y ago
      Speed is different than labor time per vehicle. Complex manufacturing is typically a highly parallel process. For instance, as Tesla ramps up to 5,000 vehicles a week sometime this year, Toyota will sell 30 to 40 thousand vehicles a week just in the US. One of them is obviously producing vehicles faster.
      - dev1n 9y ago
        Toyota has 6 factories in the US while Tesla has one. 30,000 Toyota vehicles divided by 6 factories gives you 5,000 a week. Which is what Tesla is doing.
        maxerickson 9y ago
        Tesla is planning to produce 5000 vehicles a week. But my point was that removing buttons isn't the only way to quickly produce cars and it is awkward to praise them for their relatively slow production rate. Praise them for reducing the time devoted to assembling each vehicle.
    - samfisher83 9y ago
- kgwgk 9y ago
  To sit in your pile of cash and profit from margins, you need to make money and have positive margins. You make it sound as if they could have chosen that path...
  - bryanlarsen 9y ago
    The gross margin on the Model S is over 25%.
    - dkrich 9y ago
      For a luxury car, that's not really good. As you move down-market, margins only get lower, so you have to rely on volume to make significant amounts of money. If people don't buy Model 3's by the hundreds of thousands every quarter, they are going to have problems squeezing profits from this car.
      - toomuchtodo 9y ago
        Legacy luxury margins. BMW: 8% Mercedes: 11% Audi: 7%
        kgwgk 9y ago
        Gross margins are significantly higher than that (maybe below Tesla's 25%, but they sell many cars cheaper than the model S).
        dkrich 9y ago
        So a company that has widening losses claims a 25% margin on its cars. Sounds like some interesting accounting is at work. Ask Bob Lutz whether margins are greater on a Chevy Camaro or a Cadillac ATS (exact same platform, one sells for about $10k more than the other).
        toomuchtodo 9y ago
        GM: 8.4% Sad!
- randyrand 9y ago
  Its rare for big companies, but not rare for still-unprofitable companies.
melling 9y ago
“You’re holding it wrong” Wonder if Tesla will have that moment. Recalling the Model 3 is probably their greatest fear. No product is perfect and they’re about to ship tens of thousands a month within a very short period of time
- deleted 9y ago
  [deleted]
- annerajb 9y ago
  Which is one of the reasons why I agree with their strategy to sell to its own employees and investors first. Their feedback loop is so quick and they have a financial and personal interest in the product being perfect. If they see any issue they will already have a lot of knowledge to debug it/know immediately who to contact to get it debug and have a financial and personal interest for it to be done quickly and correctly. Which is also part of the reason why the ramp up is really slow at the beginning.
simonsarris 9y ago
> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you want to do, you get the money and spend it.[1] This seems to be constantly framed as negative ("they aren't making any money!"), but that's the correct growth strategy for what Musk wants to do. Nobody adds tons of debt just to not use it. Cribbing from my comment yesterday: I've owned TSLA a long time and I hope they don't start making money, and continue the Amazon model and actually build something with years of minimal or no profits, re-investing vigorously. Amazon had almost 20 years in business without "making any money" except a few quarters where they accidentally eked out some non-trivial profit. But without their spending, they wouldn't have become Amazon. Without Tesla's spending, they won't be a future company, they'll just be a tiny car company. For some historical comparison: Amazon added $6bn in debt as recently as 2014. Even very large and very successful companies take on debt to fuel growth far beyond "bootstrap" numbers. Both companies leverage as much investment money as they can to build and expand as fast as they can. If you look at Amazon's raises in the late 1990's you'll find something more comparable to Tesla today relative to revenue. In 1999 Amazon raised $1.25 billion, and their revenue for the year was $1.64 billion. So they raised proportionally way more money than Tesla has so far this year. And spent it all! full comment here: https://news.ycombinator.com/item?id=14915317 https://news.ycombinator.com/item?id=14915317 [1] The flipside of this is that it's an indictment of companies that hoard huge amounts of cash, like Apple. That they can't find a way spend it building future stuff is a signal that they are out of big ideas, and (in the case of Apple) have been for some time. Musk and Bezos, on the other hand, have clear ideas of what to spend money on to build something.
- 11thEarlOfMar 9y ago
  Yes, I learned this fact painfully. I bailed on my IPO AMZN shares because they kept taking on massive debt. Just didn't have the stomach for it. Of course, that was 2004, about 1/20 of today's price. <sigh>
lafar6502 9y ago
The harder they will hit the wall
- frenchie4111 9y ago
  Would much prefer to run into a wall driving a Model 3 than a Prius
  - dingo_bat 9y ago
    Is Prius a bad car safety-wise? I thought Toyota cars are very reliable and well-engineered.
    - bryanlarsen 9y ago
      I think it's less that the Prius is bad but that the parent is assuming that the Model 3 will be great. Which is a good assumption based on Elon's statements and the track record of the S, but the Model 3 is an amazingly light car for something with more steel, a glass roof and so many pounds in batteries, so it may not be the class leader that the S is.
  - deleted 9y ago
    [deleted]
  - lafar6502 9y ago
    Not relevant, but model 3 cockpit looks like golf cart
  - lafar6502 9y ago
    Not relevant, but model 3 cockpit looks like golf cart
bmcusick 9y ago
BREAKING: Building a car factory and battery supply chain requires a lot of up front capital.
aiyodev 9y ago
Elon Musk's empire is a house of cards built on self promotion and empty promises. It's only a matter of time before the whole thing comes crashing down.
- Helmet 9y ago
  Really? Empty promises? Here you go: https://en.wikipedia.org/wiki/History_of_SpaceX https://en.wikipedia.org/wiki/History_of_SpaceX And he's about to pull it off again with Tesla. I guess we'll have to wait and see.
- elsonrodriguez 9y ago
  I'll take the house of cards jab, but the "empty promises" thing means I'll have to see a shrink about all the imaginary Teslas I see every day, and the SpaceX landings that are obviously a hoax.
- tmzt 9y ago
  Those CG and Kerbel rocket launches they broadcast were incredibly realistic, I'm amazed that NASA, independent photographers and even competitors like ULA went along with such a complex charade.
- romanovcode 9y ago
  I'm not sure what empty promises you are talking about. Tesla cars are pretty good and run great. Of course you cannot go country-wide trip with them but IMO that's not what they are made for in the first place.
bmh_ca 9y ago
People often think of the electronic-nature of their cars as Tesla's key advantage. Other elements factor into share/debt cost analysis: 1. Culture — They appear to still have a startup "let's solve the problem" mentality 2. Distribution — There are no networks of dealerships taking a cut 3. Marketing — They don't need to pay for it at all right now 4. Legacy — There are no pension funds and other obligations on them 5. Environmental icon — There is a lot of political support for them Tesla is still high risk, but they have a big potential upside. Contrast with e.g. GM: 1. Old-school Culture of "if you build it, they will come" 2. Mandatory dealerships 3. Big marketing costs 4. Pensions are underfunded and they have a huge inventory buildup (and defaulting subprime leases are mounting) 6. They have a lot of political support, but it's not for environmental reasons That's pretty cursory, but illustrates a few factors besides just the product. Tesla's burn rate is a marginal-risk long factor, if/when they get past their manufacturing bottlenecks. [edit]: Newlines.
- adventured 9y ago
  > Pensions are underfunded That contrast issue is very weak. GM's pension was underfunded by $7.2 billion at the end of 2016. They had $24.7 billion in cash at that point. It's around 7% underfunded. It's a non-issue, particularly since GM has continued to successfully work at reducing it and has been solidly profitable since the great recession.
  - bmh_ca 9y ago
    You may be right, and GM's revenue remains massive so it's a fraction of revenue. The only area of concern is the growth presumptions in the pension fund. They are often around 7.5%, whereas real growth was 0.5%, putting a potential damper on the profit line (but I do not know that relative magnitude of that).
awkwarddaturtle 9y ago
Jesus. Look at the top comment and the replies in this thread. I find it hard to believe it is real HN commenters and not a TSLA PR campaign here. "What are the accumulated losses so far? $5-10B? Even if Tesla were to spend another $50B and go bankrupt, I would still maintain it's great." Seriously? This is being voted up? Also, the top commenter here "simonsarris" is a top commenter in the other TSLA thread. https://news.ycombinator.com/item?id=14914310 https://news.ycombinator.com/item?id=14914310 It's like a TSLA/Elon cult meeting in this thread.
- jessriedel 9y ago
  I don't see the jump from noting that the same enthusiastic fanboy is in the HN thread and the TSLA thread to "It's like a TSLA/Elon cult meeting in this thread." If you just note the connection without the inflammatory language, it's much more productive.
  - awkwarddaturtle 9y ago
    > I don't see the jump from noting that the same enthusiastic fanboy is in the HN thread and the TSLA thread to "It's like a TSLA/Elon cult meeting in this thread." Have you read the comments and the replies?
    - jessriedel 9y ago
      Yes. The fact that HN is sympathetic to Tesla is not more surprising than it's unusual interest in bicycle lanes and life extension. But name calling doesn't help at all. Better would be to link to high-quality criticism, write it yourself, or minimally just point out imbalance without inflammatory language.
- tpolischuk 9y ago
  The comment you are quoting is a snippet out of context. I'm not sure why you're so upset. 'Whether Tesla survives or not, these billions are some of the best spent money on the planet in the last 50 years. What are the accumulated losses so far? $5-10B? Even if Tesla were to spend another $50B and go bankrupt, I would still maintain it's great. What Tesla has achieved is so important in the long run for the environment, for ending the strategic dependence on oil dictatorships, and for renewing the belief in technology. And the cars are really nice too. Speculating, as some do, that the EV revolution would end with a Tesla bankruptcy is silly, not just because Google and Apple (and probably other companies) would be more than happy to take over before or after a bankruptcy, but also because consumers and the the auto industry have now been shown where to go. None of us can unlearn what Tesla has taught us. There is no way back now. Tesla has already won.'
adamvalve 9y ago
Fast Good Cheap. Choose two.
model_m_warrior 9y ago
Tesla is a scam.
Animats 9y ago
Cash flow is not a big problem as long as the product is selling well at a profit. The question with the Model 3 was whether Tesla could make money at $35K per unit. In practice, the cars are going out the door above $50K with options, and it's much easier to be profitable at that price. (This is an old Detroit strategy, called "more car per car". Profit comes from the add-ons.)

179 points by bipr0 9y ago

> The company burned through $1.16 billion in cash in the second quarter by spending on capacity for its cheapest model yet and boosting battery output. This makes me very happy. It's very rare for a large company to literally risk their existence to bring a new product to market. Most prefer to just sit in the pile of cash and profit from margins...

jotjotzzz 9y ago
I don't think it's much of a risk. They created a product that is way differentiated from every other car out there and people want to buy it. It's like seeing the iPhone for the first time, and all the other flip-phones out there is simply just not enough anymore. They will succeed. If I'm in the market for a new car, I would totally line up for this one.
- dkrich 9y ago
  This is where I disagree with most people who are bullish on Tesla. I think there's a huge risk for Tesla that most people don't factor in- that it's very possible that most car buyers simply don't want one. The interesting thing about that is that most people seem to assume that making them at enormous scale and meeting the overwhelming demand is the only risk. What a century of observing the auto industry has taught us is that car buyers in huge percentages have fierce brand-loyalty and that anytime a new model is brought to market there's a huge uphill battle to create demand. That's not to say that lots of people won't want a Tesla, clearly there's evidence that there's a market. But it remains to be seen whether that's a niche market or the better part of the auto market. To justify the current valuation, you'd have to believe its the latter. Comparisons to the iPhone seem oversimplified. The iPhone on pretty much every metric was demonstrably better than every other phone on the market, and by a huge margin. Tesla is better on some metrics- doesn't rely on fossil fuels, has some cool technology, and is a novelty because there aren't that many of them on the road. But on most other metrics, there are lots and lots of better options. Some have more power, some are much cheaper, some have more storage space, and some simply have better brand awareness and loyalty. Again, not suggesting that they aren't developing a great product. But there are huge risks to the survival of this company beyond cash burn that I don't think people are taking into account.
  - toomuchtodo 9y ago
    The Gigafactory is specifically designed to balance vehicle and stationary storage cell production. Not enough cars selling? More batteries for utility scale energy storage. And the demand for energy storage isn't going away.
  - smokeyj 9y ago
    Tesla is the Apple equivalent for cars. Consumers see the Tesla brand as innovative and high quality regardless if it's true. Even if other manufacturers make a Tesla equivalent, that's like iPhone vs Android. It's a status thing for many, and for that alone I'd bet on the Tesla brand.
    - dkrich 9y ago
      This seems like an availability bias. Are you saying that consumers don't regard Porsche, Audi, BMW, Lexus, Mercedes and Infiniti as innovative and high quality?
  - rsync 9y ago
    "What a century of observing the auto industry has taught us is that car buyers in huge percentages have fierce brand-loyalty and that anytime a new model is brought to market there's a huge uphill battle to create demand." I think we could be at a point similar to laptop buyers in 2002/2003/2004. Remember when there were multiple companies making laptops and you would comparison shop and read reviews and look ahead to some new line of Fujitsu vs. Sony vs. Panasonic laptops and maybe visit dynamism.com and see what was being sold in Japan and so on and so forth ? And then 2-3 years later there was one laptop manufacturer: Apple. Everything else was irrelevant in the face of a solid block of metal with a glass screen that lasts 5-7 years and "just works". When was the last time you spec'd out different laptops - other than perhaps to read with mild interest about some Dell model built for Ubuntu that might possibly be an option but probably isn't. I have mixed feelings about this ... On the one hand, Apple laptops really are the best that has ever been and have largely "solved" the category. On the other hand, without any competition we get strong-armed into certain design decisions that might not work for us ... glossy screens, no more full sized USB ports, maybe headphone jack goes away ... Electric only drive, skateboard style battery platform (with dramatically lowered center of gravity) and AWD with multiple motors ... I want these innovations. But I would also like some choices in styling and design - especially since I dislike the Tesla interior design so much ...
- lumberjack 9y ago
  >They created a product that is way differentiated from every other car out there and people want to buy it. What? The Bolt has slightly better range, and probably much better build quality. The difference in price is $2k on a base price of $30k. And if Chevy could do it, I'm positive most others can too.
  - rohit2412 9y ago
    And Renault Zoe, and BYD ev300. There are electric cars available all round the world, but somehow Tesla got the hype up that they are the only one.
    - Diederich 9y ago
      I'm a huge Elon Musk/Tesla/SpaceX fanboy, but I make it a point to reinforce this. Especially with Tesla, the hype is way, way overboard. It's not connected to reality. I say that as someone who reserved a Model 3 on the first day, and will be buying one hopefully in a few months. And I also believe the Tesla Motors will very likely become a global, major auto-maker, not based on stock price, but based on how many cars they make. I do think Teslas are either the best cars in their class or close to it. But the alternatives aren't that far behind, and there's no reason to believe they won't catch up or even surpass the Teslas. I will end by noting that I believe Elon Musk when he states his goal for Tesla: to 'push the ball forward' regarding the production and use of sustainable energy. He fully expected Tesla Motors to fail, and it nearly did. So Musk's primary goal isn't to become the largest auto maker in the world. His goal is see the vast majority of new cars being electric, whoever sells them. I think that kind of straightforward, honest and pragmatic perspective is a big piece of what drives the often rabid fanboyism, and the irrational stock price.
  - nicpottier 9y ago
    I really like the Bolt and agree as an electric vehicle it is super competitive. But can I buy a Bolt today and get self driving capabilities on the same car in a few years? That's a pretty massive pull towards the Tesla even if you consider everything else equal. You don't even have to pay for it now, you can wait it out and pay for the self driving to be activated later once you are sold, but not having to buy an entirely new car to do so is crazy. I'm hugely bullish on Tesla because they just have so many different angles to win. They have the most experience with electric, they have a massive (and fast) charging network that continues to grow, their electric cars are the priority not a hedge and as mentioned above, they are moving fast into self driving.
samfisher83 9y ago
I think a slower roll out would be prudent. If you burn all your cash and you are forced to raise cash it puts you in a bad situation. This is brand new car. Companies like Toyota have issues with their cars and they generally only make incremental changes to each model, and Toyota Production System is probably one of most taught and studied system for production.
- dev1n 9y ago
  If you haven't seen a review on the model 3 I highly suggest MKBHD's review. He goes over how a lot of pieces of a standard car are stripped out (I.e. No physical buttons) this was to reduce manufacturing complexity and increase production speed. Toyota does not build cars like the way Tesla has engineered this end to end.
  - maxerickson 9y ago
    Speed is different than labor time per vehicle. Complex manufacturing is typically a highly parallel process. For instance, as Tesla ramps up to 5,000 vehicles a week sometime this year, Toyota will sell 30 to 40 thousand vehicles a week just in the US. One of them is obviously producing vehicles faster.
    - dev1n 9y ago
      Toyota has 6 factories in the US while Tesla has one. 30,000 Toyota vehicles divided by 6 factories gives you 5,000 a week. Which is what Tesla is doing.
      - maxerickson 9y ago
        Tesla is planning to produce 5000 vehicles a week. But my point was that removing buttons isn't the only way to quickly produce cars and it is awkward to praise them for their relatively slow production rate. Praise them for reducing the time devoted to assembling each vehicle.
  - samfisher83 9y ago
kgwgk 9y ago
To sit in your pile of cash and profit from margins, you need to make money and have positive margins. You make it sound as if they could have chosen that path...
- bryanlarsen 9y ago
  The gross margin on the Model S is over 25%.
  - dkrich 9y ago
    For a luxury car, that's not really good. As you move down-market, margins only get lower, so you have to rely on volume to make significant amounts of money. If people don't buy Model 3's by the hundreds of thousands every quarter, they are going to have problems squeezing profits from this car.
    - toomuchtodo 9y ago
      Legacy luxury margins. BMW: 8% Mercedes: 11% Audi: 7%
      - kgwgk 9y ago
        Gross margins are significantly higher than that (maybe below Tesla's 25%, but they sell many cars cheaper than the model S).
      - dkrich 9y ago
        So a company that has widening losses claims a 25% margin on its cars. Sounds like some interesting accounting is at work. Ask Bob Lutz whether margins are greater on a Chevy Camaro or a Cadillac ATS (exact same platform, one sells for about $10k more than the other).
        toomuchtodo 9y ago
        GM: 8.4% Sad!
randyrand 9y ago
Its rare for big companies, but not rare for still-unprofitable companies.

melling 9y ago

“You’re holding it wrong” Wonder if Tesla will have that moment. Recalling the Model 3 is probably their greatest fear. No product is perfect and they’re about to ship tens of thousands a month within a very short period of time

deleted 9y ago
[deleted]
annerajb 9y ago
Which is one of the reasons why I agree with their strategy to sell to its own employees and investors first. Their feedback loop is so quick and they have a financial and personal interest in the product being perfect. If they see any issue they will already have a lot of knowledge to debug it/know immediately who to contact to get it debug and have a financial and personal interest for it to be done quickly and correctly. Which is also part of the reason why the ramp up is really slow at the beginning.

simonsarris 9y ago

> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you want to do, you get the money and spend it.[1] This seems to be constantly framed as negative ("they aren't making any money!"), but that's the correct growth strategy for what Musk wants to do. Nobody adds tons of debt just to not use it. Cribbing from my comment yesterday: I've owned TSLA a long time and I hope they don't start making money, and continue the Amazon model and actually build something with years of minimal or no profits, re-investing vigorously. Amazon had almost 20 years in business without "making any money" except a few quarters where they accidentally eked out some non-trivial profit. But without their spending, they wouldn't have become Amazon. Without Tesla's spending, they won't be a future company, they'll just be a tiny car company. For some historical comparison: Amazon added $6bn in debt as recently as 2014. Even very large and very successful companies take on debt to fuel growth far beyond "bootstrap" numbers. Both companies leverage as much investment money as they can to build and expand as fast as they can. If you look at Amazon's raises in the late 1990's you'll find something more comparable to Tesla today relative to revenue. In 1999 Amazon raised $1.25 billion, and their revenue for the year was $1.64 billion. So they raised proportionally way more money than Tesla has so far this year. And spent it all! full comment here: https://news.ycombinator.com/item?id=14915317 https://news.ycombinator.com/item?id=14915317 [1] The flipside of this is that it's an indictment of companies that hoard huge amounts of cash, like Apple. That they can't find a way spend it building future stuff is a signal that they are out of big ideas, and (in the case of Apple) have been for some time. Musk and Bezos, on the other hand, have clear ideas of what to spend money on to build something.

11thEarlOfMar 9y ago
Yes, I learned this fact painfully. I bailed on my IPO AMZN shares because they kept taking on massive debt. Just didn't have the stomach for it. Of course, that was 2004, about 1/20 of today's price. <sigh>

lafar6502 9y ago

The harder they will hit the wall

frenchie4111 9y ago
Would much prefer to run into a wall driving a Model 3 than a Prius
- dingo_bat 9y ago
  Is Prius a bad car safety-wise? I thought Toyota cars are very reliable and well-engineered.
  - bryanlarsen 9y ago
    I think it's less that the Prius is bad but that the parent is assuming that the Model 3 will be great. Which is a good assumption based on Elon's statements and the track record of the S, but the Model 3 is an amazingly light car for something with more steel, a glass roof and so many pounds in batteries, so it may not be the class leader that the S is.
- deleted 9y ago
  [deleted]
- lafar6502 9y ago
  Not relevant, but model 3 cockpit looks like golf cart
- lafar6502 9y ago
  Not relevant, but model 3 cockpit looks like golf cart

bmcusick 9y ago

BREAKING: Building a car factory and battery supply chain requires a lot of up front capital.

aiyodev 9y ago

Elon Musk's empire is a house of cards built on self promotion and empty promises. It's only a matter of time before the whole thing comes crashing down.

Helmet 9y ago
Really? Empty promises? Here you go: https://en.wikipedia.org/wiki/History_of_SpaceX https://en.wikipedia.org/wiki/History_of_SpaceX And he's about to pull it off again with Tesla. I guess we'll have to wait and see.
elsonrodriguez 9y ago
I'll take the house of cards jab, but the "empty promises" thing means I'll have to see a shrink about all the imaginary Teslas I see every day, and the SpaceX landings that are obviously a hoax.
tmzt 9y ago
Those CG and Kerbel rocket launches they broadcast were incredibly realistic, I'm amazed that NASA, independent photographers and even competitors like ULA went along with such a complex charade.
romanovcode 9y ago
I'm not sure what empty promises you are talking about. Tesla cars are pretty good and run great. Of course you cannot go country-wide trip with them but IMO that's not what they are made for in the first place.

bmh_ca 9y ago

People often think of the electronic-nature of their cars as Tesla's key advantage. Other elements factor into share/debt cost analysis: 1. Culture — They appear to still have a startup "let's solve the problem" mentality 2. Distribution — There are no networks of dealerships taking a cut 3. Marketing — They don't need to pay for it at all right now 4. Legacy — There are no pension funds and other obligations on them 5. Environmental icon — There is a lot of political support for them Tesla is still high risk, but they have a big potential upside. Contrast with e.g. GM: 1. Old-school Culture of "if you build it, they will come" 2. Mandatory dealerships 3. Big marketing costs 4. Pensions are underfunded and they have a huge inventory buildup (and defaulting subprime leases are mounting) 6. They have a lot of political support, but it's not for environmental reasons That's pretty cursory, but illustrates a few factors besides just the product. Tesla's burn rate is a marginal-risk long factor, if/when they get past their manufacturing bottlenecks. [edit]: Newlines.

adventured 9y ago
> Pensions are underfunded That contrast issue is very weak. GM's pension was underfunded by $7.2 billion at the end of 2016. They had $24.7 billion in cash at that point. It's around 7% underfunded. It's a non-issue, particularly since GM has continued to successfully work at reducing it and has been solidly profitable since the great recession.
- bmh_ca 9y ago
  You may be right, and GM's revenue remains massive so it's a fraction of revenue. The only area of concern is the growth presumptions in the pension fund. They are often around 7.5%, whereas real growth was 0.5%, putting a potential damper on the profit line (but I do not know that relative magnitude of that).

awkwarddaturtle 9y ago

Jesus. Look at the top comment and the replies in this thread. I find it hard to believe it is real HN commenters and not a TSLA PR campaign here. "What are the accumulated losses so far? $5-10B? Even if Tesla were to spend another $50B and go bankrupt, I would still maintain it's great." Seriously? This is being voted up? Also, the top commenter here "simonsarris" is a top commenter in the other TSLA thread. https://news.ycombinator.com/item?id=14914310 https://news.ycombinator.com/item?id=14914310 It's like a TSLA/Elon cult meeting in this thread.

jessriedel 9y ago
I don't see the jump from noting that the same enthusiastic fanboy is in the HN thread and the TSLA thread to "It's like a TSLA/Elon cult meeting in this thread." If you just note the connection without the inflammatory language, it's much more productive.
- awkwarddaturtle 9y ago
  > I don't see the jump from noting that the same enthusiastic fanboy is in the HN thread and the TSLA thread to "It's like a TSLA/Elon cult meeting in this thread." Have you read the comments and the replies?
  - jessriedel 9y ago
    Yes. The fact that HN is sympathetic to Tesla is not more surprising than it's unusual interest in bicycle lanes and life extension. But name calling doesn't help at all. Better would be to link to high-quality criticism, write it yourself, or minimally just point out imbalance without inflammatory language.
tpolischuk 9y ago
The comment you are quoting is a snippet out of context. I'm not sure why you're so upset. 'Whether Tesla survives or not, these billions are some of the best spent money on the planet in the last 50 years. What are the accumulated losses so far? $5-10B? Even if Tesla were to spend another $50B and go bankrupt, I would still maintain it's great. What Tesla has achieved is so important in the long run for the environment, for ending the strategic dependence on oil dictatorships, and for renewing the belief in technology. And the cars are really nice too. Speculating, as some do, that the EV revolution would end with a Tesla bankruptcy is silly, not just because Google and Apple (and probably other companies) would be more than happy to take over before or after a bankruptcy, but also because consumers and the the auto industry have now been shown where to go. None of us can unlearn what Tesla has taught us. There is no way back now. Tesla has already won.'

adamvalve 9y ago

Fast Good Cheap. Choose two.

model_m_warrior 9y ago

Tesla is a scam.

Animats 9y ago

Cash flow is not a big problem as long as the product is selling well at a profit. The question with the Model 3 was whether Tesla could make money at $35K per unit. In practice, the cars are going out the door above $50K with options, and it's much easier to be profitable at that price. (This is an old Detroit strategy, called "more car per car". Profit comes from the add-ons.)