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> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s t

> “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>
- simonsarris 9y ago
  I wouldn't take it too badly,* its not as if there's no risk to taking on billions of debt, so if you feel something is too risky for your investing dollars, maybe you did the right thing for you at the time. If you don't think they (Musk, Bezos, I wish I could think of a failed example![1]) can spend it wisely. The interesting thing to me is that we know that Tim Cook (and other cash rich companies sorry to pick on Apple) cannot spend the money wisely. And they know it too. That's why it's sitting there, where "sitting there" is the best ROI they can think of so far. I think the existence of such large cash piles should worry us all more than it does. * just kidding if I bought AMZN at IPO and sold it I'd take it pretty badly. [1] thought of one. If you don't remember pets.com, you owe yourself a treat: https://en.wikipedia.org/wiki/Pets.com https://en.wikipedia.org/wiki/Pets.com
  - 11thEarlOfMar 9y ago
    I guess today's theme is "how to flagellate oneself with memories of painful investing lessons". Not only remembering Pets.com, which I avoided, how about TGLO or CMTN, which I did not... I had to sell CMTN at a 101% loss. Figure that one out. TheGlobe.com was as much a laughing stock as Pets. The best thing to come out of The Bubble was this eTrade commercial: https://www.youtube.com/watch?v=E0_tfoTTGOQ https://www.youtube.com/watch?v=E0_tfoTTGOQ At least the absolute $s weren't that big for me at the time. And the lessons formed a base of experience that served me well as I had more to invest. It's been much better since.
- mrtron 9y ago
  For a few select few companies, I see the constant investment (and increasing debt) as an opportunity. The general market will undervalue the performance of the company. AMZN was undervalued for years, and potentially still is, for this reason.
- justadeveloper2 9y ago
  I passed up a job there when they were opening up for the first time. That's life.
jgalt212 9y ago
The AMZN model won't work b/c no matter how good Tesla's products are, he won't be allowed to create a monopoly. The zeitgeist has shifted, and VC's and investors who are betting on future market domination or monopolies are going to be disappointed.
- feld 9y ago
  They're not going to be a monopoly. They will be the only company on the planet that can produce the motors and batteries(!!) that are required for high quality and reliable EVs. Tesla will make some cars for Tesla fans. Tesla will make billions selling key parts to everyone else. So they'll be the new Bosch of EVs, really.
  - jgalt212 9y ago
    Fair enough, but Bosch only trades at a 44 PE, which is about double the market's PE, but not crazy high.
    - mxschumacher 9y ago
      the reference is to Germany's privately held Robert Bosch GmbH: https://en.wikipedia.org/wiki/Robert_Bosch_GmbH https://en.wikipedia.org/wiki/Robert_Bosch_GmbH
    - bekaus 9y ago
      Robert Bosch GmbH, the - amongst other things - automotive supplier is not a publicly traded company, but the German equivalent of a LLC. (Some subsidiaries are traded on the stockmarket, though)
  - meddlepal 9y ago
    I really doubt the other car companies will let that happen. Either they'll work out the battery and motor tech themselves OR they'll push for hydrogen. The automotive industry isn't going to let a company like Tesla bully them around.
whatok 9y ago
Tesla is raising money and is valued like it's a growth stock and it should. Amazon has been and arguably still is valued as a growth stock but has been internally financed to a much larger degree. There's a massive difference in Amazon raising cash vs Tesla and the form of capital raise is also huge. Amazon has only had one secondary offering (2003) while Tesla has had an offering every year except 2014. The Amazon "big capital" raise you point out was in the form of vanilla corporate bonds while Tesla has only issued convertible bonds. Had Tesla wanted to issue regular corporates (more than likely junk rated if their convert ratings are any indication), I'd imagine they would struggle to meet the interest payments. Additionally, any large corporate issuer with good cash flow has been taking advantage of low interest rates and Amazon is among them. Tesla is raising money and is valued like it's a growth stock and it should. Amazon has been and arguably still is valued as a growth stock but has been internally financed to a much larger degree. This is not to say that Tesla is doomed blah blah blah. It's to illustrate that Amazon has cash flow while Tesla doesn't and is much more susceptible to the whims of capital markets. I'd also like to point out that Amazon is probably more able to weather economic cycles than Tesla is and that's primarily when cash flow poor companies either aren't able to raise or raise at ridiculous terms.
abritinthebay 9y ago
Your point about companies with large cash hoards is true but breaks down at the sheer scale of Apple & it’s cash reserve. Apple is routinely making several billion dollar bets. They invest Amazon & Tesla debts regularly but it just doesn’t make a dent. At some point a cash pile is so large it’s basically impossible to spend responsibly. Even with big bets. They have so much cash they could buy Disney outright if they wanted to. Think about that for a second...
- simonsarris 9y ago
  > They have so much cash they could buy Disney outright if they wanted to. Think about that for a second... Yeah and they don't. Why don't they buy Tesla? Why don't they buy Disney? Why don't they attempt to reinvent home construction which is a stagnant for the most part? Why aren't they the next Bell labs? Why not reinvent major home appliances most of which are a huge drag and a dumpster fire of usability? "This changes everything" was their tagline for a phone. Why stop at the phone? Why not redesign everything? Why stop at a nice looking HQ, why not create Castalia? Why not create a house of study and give one hundred architects and designers a rest-of-their-life pension and see what they come up with? Because it might cost too much? Why not pick a hard problem of any kind and actually tackle it? Because Q3 might look bad? Is that why? Why don't they do anything ambitious with that hoard? Really ambitious. Not hire more CS students for machine learning and deciding which iPad to kill next to make Q3 look the best. If you ponder the existence of money-to-imagination ratio, Apple is dead last. They are guilty of all the interesting things they do not do. Just an astonishing lack of real vision.
  - throwawayknecht 9y ago
    > Why stop at a nice looking HQ, why not create Castalia? Castalia was an isolationist academy where young men spent all their time studying glass toys they falsely believed modeled all art and history, while the rest of the world slowly collapsed around it. Apple's already built that.
  - abritinthebay 9y ago
    I’m trying to work out if you’re serious or satirizing someone who believes this nonsense. That’s not a failure of imagination - that’s business focus.
simonebrunozzi 9y ago
> [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. I partially disagree on this. Apple's $250 Billion dollars stashed in Europe is both a way to defer paying taxes on these profits (the main reason), and a huge gun pointed at the head of the US government (a secondary, but important reason). That amount of money is now big enough to count as a constant threat to market stability, currency stability, etc.
- RobertoG 9y ago
  " That amount of money is now big enough to count as a constant threat to market stability, currency stability, etc." I'm not sure what do you mean by market stability but I doubt very much about the currency stability thing. The USA government (Fed included there) can issue or tax money whenever they want and have total control over the monetary economy. For comparison's sake, the FED quantitative easing program was about $4.5 trillion
- jandrese 9y ago
  How would Apple threaten the markets/government with that cash? Suddenly bringing it all back to the US, giving the treasury a windfall year that Congress will squander foolishly?
flexie 9y ago
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.
- simonsarris 9y ago
  I agree with my whole heart. I think we have a moral imperative to develop electronic transportation, sooner rather than later. We think about the future much too little. Ever since we decide to concentrate farming and transport most food to mouths, we've relied on oil as a life-support system for 7.5+ billion people. There is no going back to pre-oil without a lot of those people dying, and oil will eventually be too pricey to extract. We should think harder about post-oil. I've written about this before if you're interested: https://medium.com/@simon.sarris/the-moral-technology-6413ca8449c9 https://medium.com/@simon.sarris/the-moral-technology-6413ca...
  - tbabb 9y ago
    > "It’s as if there’s a worldwide commitment to helping this company succeed" This statement makes me so happy, (a) because I feel I've noticed the same thing, (b) because it gives me faith that people actually care about putting money in good/important places, and (c) it implies that the economy understands that sustainable transport is actually an important cause, to the tune of $50B. This is what investment should be about: People cooperating to improve the way things are.
    - ghostbrainalpha 9y ago
shalmanese 9y ago
People misunderstand corporate debt because they analogize it to household debt but the analogy doesn't work because most household spending is consumption whereas most business spending is investment. When a business makes $1 of profit, it's that business saying "we couldn't find a single project across our entire organization that we believe would have given us a higher expected return than that dollar sitting in a bank account."
- adamlett 9y ago
  That's oversimplified. Expected return is not the only factor to consider when deciding whether to invest or not. There is also risk to consider. A 51% chance to to either double up or lose your investment has a positive expected return, but if losing could mean catastrophe, it would be foolish to make that investment.
LeifCarrotson 9y ago
Tesla is (was) a tiny company with a huge amount of room to grow. I would argue that Amazon already owns a LOT of its market. In fact, I'm pretty sure it's now many times larger on its own than the entire online shopping industry was when it started. I am skeptical, though, that it should continue on this trend. Maybe find new markets (like AWS), but they need to watch out for the tendency of organizations to attempt to grow themselves far beyond what makes sense. Similarly, GM or Toyota do not need to take on huge investments to grow big. They are already very big.
justadeveloper2 9y ago
There is a lot of question about whether Amazon's astronomical PE is warranted as well.
kamaal 9y ago
>>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. Wasn't this expected after Steve Jobs passed away? The real troubles for Apple will start when they will end up exhausted milking iPhone and its ecosystem of products. The same will happen with Amazon if Bezos goes away and with Tesla if Musk goes away. These are largely companies driven by individual visions, take them away and they are no better than any other company.

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>

simonsarris 9y ago
I wouldn't take it too badly,* its not as if there's no risk to taking on billions of debt, so if you feel something is too risky for your investing dollars, maybe you did the right thing for you at the time. If you don't think they (Musk, Bezos, I wish I could think of a failed example![1]) can spend it wisely. The interesting thing to me is that we know that Tim Cook (and other cash rich companies sorry to pick on Apple) cannot spend the money wisely. And they know it too. That's why it's sitting there, where "sitting there" is the best ROI they can think of so far. I think the existence of such large cash piles should worry us all more than it does. * just kidding if I bought AMZN at IPO and sold it I'd take it pretty badly. [1] thought of one. If you don't remember pets.com, you owe yourself a treat: https://en.wikipedia.org/wiki/Pets.com https://en.wikipedia.org/wiki/Pets.com
- 11thEarlOfMar 9y ago
  I guess today's theme is "how to flagellate oneself with memories of painful investing lessons". Not only remembering Pets.com, which I avoided, how about TGLO or CMTN, which I did not... I had to sell CMTN at a 101% loss. Figure that one out. TheGlobe.com was as much a laughing stock as Pets. The best thing to come out of The Bubble was this eTrade commercial: https://www.youtube.com/watch?v=E0_tfoTTGOQ https://www.youtube.com/watch?v=E0_tfoTTGOQ At least the absolute $s weren't that big for me at the time. And the lessons formed a base of experience that served me well as I had more to invest. It's been much better since.
mrtron 9y ago
For a few select few companies, I see the constant investment (and increasing debt) as an opportunity. The general market will undervalue the performance of the company. AMZN was undervalued for years, and potentially still is, for this reason.
justadeveloper2 9y ago
I passed up a job there when they were opening up for the first time. That's life.

jgalt212 9y ago

The AMZN model won't work b/c no matter how good Tesla's products are, he won't be allowed to create a monopoly. The zeitgeist has shifted, and VC's and investors who are betting on future market domination or monopolies are going to be disappointed.

feld 9y ago
They're not going to be a monopoly. They will be the only company on the planet that can produce the motors and batteries(!!) that are required for high quality and reliable EVs. Tesla will make some cars for Tesla fans. Tesla will make billions selling key parts to everyone else. So they'll be the new Bosch of EVs, really.
- jgalt212 9y ago
  Fair enough, but Bosch only trades at a 44 PE, which is about double the market's PE, but not crazy high.
  - mxschumacher 9y ago
    the reference is to Germany's privately held Robert Bosch GmbH: https://en.wikipedia.org/wiki/Robert_Bosch_GmbH https://en.wikipedia.org/wiki/Robert_Bosch_GmbH
  - bekaus 9y ago
    Robert Bosch GmbH, the - amongst other things - automotive supplier is not a publicly traded company, but the German equivalent of a LLC. (Some subsidiaries are traded on the stockmarket, though)
- meddlepal 9y ago
  I really doubt the other car companies will let that happen. Either they'll work out the battery and motor tech themselves OR they'll push for hydrogen. The automotive industry isn't going to let a company like Tesla bully them around.

whatok 9y ago

Tesla is raising money and is valued like it's a growth stock and it should. Amazon has been and arguably still is valued as a growth stock but has been internally financed to a much larger degree. There's a massive difference in Amazon raising cash vs Tesla and the form of capital raise is also huge. Amazon has only had one secondary offering (2003) while Tesla has had an offering every year except 2014. The Amazon "big capital" raise you point out was in the form of vanilla corporate bonds while Tesla has only issued convertible bonds. Had Tesla wanted to issue regular corporates (more than likely junk rated if their convert ratings are any indication), I'd imagine they would struggle to meet the interest payments. Additionally, any large corporate issuer with good cash flow has been taking advantage of low interest rates and Amazon is among them. Tesla is raising money and is valued like it's a growth stock and it should. Amazon has been and arguably still is valued as a growth stock but has been internally financed to a much larger degree. This is not to say that Tesla is doomed blah blah blah. It's to illustrate that Amazon has cash flow while Tesla doesn't and is much more susceptible to the whims of capital markets. I'd also like to point out that Amazon is probably more able to weather economic cycles than Tesla is and that's primarily when cash flow poor companies either aren't able to raise or raise at ridiculous terms.

abritinthebay 9y ago

Your point about companies with large cash hoards is true but breaks down at the sheer scale of Apple & it’s cash reserve. Apple is routinely making several billion dollar bets. They invest Amazon & Tesla debts regularly but it just doesn’t make a dent. At some point a cash pile is so large it’s basically impossible to spend responsibly. Even with big bets. They have so much cash they could buy Disney outright if they wanted to. Think about that for a second...

simonsarris 9y ago
> They have so much cash they could buy Disney outright if they wanted to. Think about that for a second... Yeah and they don't. Why don't they buy Tesla? Why don't they buy Disney? Why don't they attempt to reinvent home construction which is a stagnant for the most part? Why aren't they the next Bell labs? Why not reinvent major home appliances most of which are a huge drag and a dumpster fire of usability? "This changes everything" was their tagline for a phone. Why stop at the phone? Why not redesign everything? Why stop at a nice looking HQ, why not create Castalia? Why not create a house of study and give one hundred architects and designers a rest-of-their-life pension and see what they come up with? Because it might cost too much? Why not pick a hard problem of any kind and actually tackle it? Because Q3 might look bad? Is that why? Why don't they do anything ambitious with that hoard? Really ambitious. Not hire more CS students for machine learning and deciding which iPad to kill next to make Q3 look the best. If you ponder the existence of money-to-imagination ratio, Apple is dead last. They are guilty of all the interesting things they do not do. Just an astonishing lack of real vision.
- throwawayknecht 9y ago
  > Why stop at a nice looking HQ, why not create Castalia? Castalia was an isolationist academy where young men spent all their time studying glass toys they falsely believed modeled all art and history, while the rest of the world slowly collapsed around it. Apple's already built that.
- abritinthebay 9y ago
  I’m trying to work out if you’re serious or satirizing someone who believes this nonsense. That’s not a failure of imagination - that’s business focus.

simonebrunozzi 9y ago

> [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. I partially disagree on this. Apple's $250 Billion dollars stashed in Europe is both a way to defer paying taxes on these profits (the main reason), and a huge gun pointed at the head of the US government (a secondary, but important reason). That amount of money is now big enough to count as a constant threat to market stability, currency stability, etc.

RobertoG 9y ago
" That amount of money is now big enough to count as a constant threat to market stability, currency stability, etc." I'm not sure what do you mean by market stability but I doubt very much about the currency stability thing. The USA government (Fed included there) can issue or tax money whenever they want and have total control over the monetary economy. For comparison's sake, the FED quantitative easing program was about $4.5 trillion
jandrese 9y ago
How would Apple threaten the markets/government with that cash? Suddenly bringing it all back to the US, giving the treasury a windfall year that Congress will squander foolishly?

flexie 9y ago

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.

simonsarris 9y ago
I agree with my whole heart. I think we have a moral imperative to develop electronic transportation, sooner rather than later. We think about the future much too little. Ever since we decide to concentrate farming and transport most food to mouths, we've relied on oil as a life-support system for 7.5+ billion people. There is no going back to pre-oil without a lot of those people dying, and oil will eventually be too pricey to extract. We should think harder about post-oil. I've written about this before if you're interested: https://medium.com/@simon.sarris/the-moral-technology-6413ca8449c9 https://medium.com/@simon.sarris/the-moral-technology-6413ca...
- tbabb 9y ago
  > "It’s as if there’s a worldwide commitment to helping this company succeed" This statement makes me so happy, (a) because I feel I've noticed the same thing, (b) because it gives me faith that people actually care about putting money in good/important places, and (c) it implies that the economy understands that sustainable transport is actually an important cause, to the tune of $50B. This is what investment should be about: People cooperating to improve the way things are.
  - ghostbrainalpha 9y ago

shalmanese 9y ago

People misunderstand corporate debt because they analogize it to household debt but the analogy doesn't work because most household spending is consumption whereas most business spending is investment. When a business makes $1 of profit, it's that business saying "we couldn't find a single project across our entire organization that we believe would have given us a higher expected return than that dollar sitting in a bank account."

adamlett 9y ago
That's oversimplified. Expected return is not the only factor to consider when deciding whether to invest or not. There is also risk to consider. A 51% chance to to either double up or lose your investment has a positive expected return, but if losing could mean catastrophe, it would be foolish to make that investment.

LeifCarrotson 9y ago

Tesla is (was) a tiny company with a huge amount of room to grow. I would argue that Amazon already owns a LOT of its market. In fact, I'm pretty sure it's now many times larger on its own than the entire online shopping industry was when it started. I am skeptical, though, that it should continue on this trend. Maybe find new markets (like AWS), but they need to watch out for the tendency of organizations to attempt to grow themselves far beyond what makes sense. Similarly, GM or Toyota do not need to take on huge investments to grow big. They are already very big.

justadeveloper2 9y ago

There is a lot of question about whether Amazon's astronomical PE is warranted as well.

kamaal 9y ago

>>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. Wasn't this expected after Steve Jobs passed away? The real troubles for Apple will start when they will end up exhausted milking iPhone and its ecosystem of products. The same will happen with Amazon if Bezos goes away and with Tesla if Musk goes away. These are largely companies driven by individual visions, take them away and they are no better than any other company.