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> 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 m

> 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.

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.