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What? Did you actually look at their cash flows? They are massively free cash flow negative, and it's only getting more negative every quarter. The only reason

by IBM 9y ago

What? Did you actually look at their cash flows? They are massively free cash flow negative, and it's only getting more negative every quarter. The only reason cash is up is because they regularly tap the capital markets with debt and equity, which is why Elon is constantly looking for new ways to boost the stock. The only way Tesla avoids bankruptcy is if the markets keep believing in the Elon magic, because the operations are definitely not financing the investment required. This is the key thing people miss when people falsely compare Tesla to Amazon. Amazon has always been free cash flow positive. They may never have turned a GAAP profit for many years, but they weren't issuing stock to finance their growth.

aerovistae 9y ago
Yeah, because they didn't have to build out factories and 500,000 cars in order to grow. If they did, they would have tapped the markets too.
- IBM 9y ago
  Amazon's "factories" were fulfillment centers, data centers, and free shipping. All of which were extremely expensive.
- krschultz 9y ago
  That's a complete misreading of Amazon. Their entire competitive advantage is having really cheap capital which enables unbelievable capital investment. First it was in distribution centers (3PL), then servers (AWS), and next likely be parcel delivery (look out FedEx). The e-commerce business is the first and best customer of each of these services, but they're basically a conglomerate of capital intensive low margin infrastructure services.
dforrestwilson 9y ago
^ Why was this down-voted? This analysis is correct. Tesla is on track to burn >$500m/quarter going forward and will once again have to access capital markets in 2018. Junk bond markets have been puking for the past 3 months, so that option probably is getting less likely. That leaves equity dilution. Not good for current shareholders. http://archive.fast-edgar.com//20171103/APA8Q22CZM22D262222M2WZ2BOKGZY22H292/ http://archive.fast-edgar.com//20171103/APA8Q22CZM22D262222M... A lot of the "Assets" noted on the balance sheet are the reservation costs for all of Tesla and Solar City's promised products. Tesla recently laid off a significant portion of their workforce at the Model 3 factory. Output was much lower than they had guided to for the quarter. It doesn't look like that's going to change soon. If customers start demanding refunds a lot of the assets listed on the balance sheet go away. The liabilities on the other hand, won't be going anywhere. People can insist that Tesla is effecting some positive changes in the world, but it seems to me that mostly they have been good at repackaging and reselling the tech of other companies in creative ways.
- smoll 9y ago
  > People can insist that Tesla is effecting some positive changes in the world, but it seems to me that mostly they have been good at repackaging and reselling the tech of other companies in creative ways. I've seen this critique leveled at Apple and it makes more sense there (the Mac borrowing heavily from stuff they witnessed at Xerox PARC and the original iPhone just doing what a lot of other phones at the time were doing, except simpler and more mass-adoptable), but what evidence do you have for this applying to Tesla? Even if you admit that battery technology improvements that made EVs viable were implemented elsewhere, the entire automotive industry was 100% behind the combustion engine before Tesla, and now almost every car company is building EVs. This isn't merely Tesla effecting "positive change in the world", they proved that EVs were manufacturable, that the public wanted it, and solved numerous obstacles to actually bring it to market. The EV would literally not exist (to the public) in 2017 if not for Tesla. How is that merely repackaging tech?
  - IBM 9y ago
    People who level that critique at Apple are the equivalent of sports fans of rivals to the Yankees constantly talking trash about the Yankees. That is, it may make fans of Apple angry (and it did all throughout the 90s and 00s) but it had no impact on the fundamentals of Apple's business. While people were leveling that critique against Apple, Apple was selling millions of iMacs, then hundreds of millions of iPods, and now over a billion iPhones. Now I would say it's extremely shallow analysis of Apple as a business to say they were just repackaging tech (you don't do hundreds of billions of dollars in revenue over the past 20 years if you aren't actually innovating [EDIT: actually iOS devices alone have done almost a trillion in revenue], especially if you don't have a monopoly in the relevant markets). Tesla is not Apple though. In order for the analogy to Apple to work, Tesla would have to be shipping a massive amount of EVs (and a growing amount as well) while they were being criticized. They haven't. In fact the penetration of EVs as a % of all cars sold is single digits. If you want to take the perspective of the author of the article, then we can at least say that Tesla may have induced rival car makers to at least get interested in EVs and demonstrated a small market exists for them, but it's not clear that once every automaker begins shipping EVs at scale that it's going to replace non-EVs in the market in a significant way. What if EVs just top out at 20%? On another level it's kind of a silly perspective to take because real people have invested their money in Tesla. A lot of them might be rich tech workers who no one will shed tears for, but big institutional investors like Fidelity own significant stakes in Tesla, and they're managing 401ks for regular people. I don't think too many investors who invested in telecom companies during the tech bubble took comfort in the fact that at least society was left with a lot of fiber and infrastructure. What would Tesla even leave behind anyway? The only thing I can think of is the battery factory which hopefully would be able to produce batteries for other manufacturers. But even that is not clear to me since China is pouring billions into doing that as well (and they're going to have a lower cost of capital compared to some private entity without state backing).
dalbasal 9y ago
You're right, but (IMO) only looking at half of the whole. Tesla is spending a lot. More than they earn. Whatever back-of-the-envelope profitability model you attribute to their car making operation to differentiate marginal-operational from capital-investment costs, it does not add up to anything like enough to cover all costs. They cannot cover costs from free cash (as you say) which means they need capital coming in (as you say), debt and equity. But, this doesn't mean they are selling elonmagic. No one would expect a car company to bootstrap, grow from cash flow. The place they expect to be is cash-hungry. This is what accountants are for, figuring out if a company is headed towards profitability when free cash flow is not an indicator. The whole idea is that Tesla will be gradually capitalized to the point where it is like GM or Toyota. Where elonmagic does come in is the same place startup-magic always comes in. It's novel in the auto industry. But, it's bread and butter on crunchbase (or here). Does this company have the potential to create a large, high margin business. The accountant will have a harder time telling you this, and so will annual report readers. It's like answering the question Will Facebook manage to build an advertising business like Goog's? The answer turned out to be yes, so FB is worth a lot of money. Valuation of FB at IPO time was essentially the aggregate investor's answer to that question at that time. Elonmagigic plays a big role in that 2nd part, unavoidably. This seems reasonable and to me. Accounts are accounts. Sometimes the story is simple, and accoutns tell a simple story. Sometimes the real story is there, but takes context, digging and smart accountants to tell properly. Some important parts of the story are not in the accounts, like the fact the Tesla can apparently produce a faster supercar than anyone at 1/4 of the cost.
DennisP 9y ago
Most of the new financing is debt, which I referred to above. The new equity is only $472M for the first nine months of this year. Their operating loss over the same period is $570M. As I also said, most of what they're spending is capital expenditure, amounting to about $3B. I.e. the basic story here is simple: they're borrowing a bunch of money to build new factories, which is exactly what you would expect a new car company to do.
kgwgk 9y ago
To be fair, Amazon issues shares to give to employees. The dilution is not huge but it’s real and helps to keep cash-flows positive and make the company look more profitable than it is.

by IBM 9y ago

aerovistae 9y ago

Yeah, because they didn't have to build out factories and 500,000 cars in order to grow. If they did, they would have tapped the markets too.

IBM 9y ago
Amazon's "factories" were fulfillment centers, data centers, and free shipping. All of which were extremely expensive.
krschultz 9y ago
That's a complete misreading of Amazon. Their entire competitive advantage is having really cheap capital which enables unbelievable capital investment. First it was in distribution centers (3PL), then servers (AWS), and next likely be parcel delivery (look out FedEx). The e-commerce business is the first and best customer of each of these services, but they're basically a conglomerate of capital intensive low margin infrastructure services.

dforrestwilson 9y ago

^ Why was this down-voted? This analysis is correct. Tesla is on track to burn >$500m/quarter going forward and will once again have to access capital markets in 2018. Junk bond markets have been puking for the past 3 months, so that option probably is getting less likely. That leaves equity dilution. Not good for current shareholders. http://archive.fast-edgar.com//20171103/APA8Q22CZM22D262222M2WZ2BOKGZY22H292/ http://archive.fast-edgar.com//20171103/APA8Q22CZM22D262222M... A lot of the "Assets" noted on the balance sheet are the reservation costs for all of Tesla and Solar City's promised products. Tesla recently laid off a significant portion of their workforce at the Model 3 factory. Output was much lower than they had guided to for the quarter. It doesn't look like that's going to change soon. If customers start demanding refunds a lot of the assets listed on the balance sheet go away. The liabilities on the other hand, won't be going anywhere. People can insist that Tesla is effecting some positive changes in the world, but it seems to me that mostly they have been good at repackaging and reselling the tech of other companies in creative ways.

smoll 9y ago
> People can insist that Tesla is effecting some positive changes in the world, but it seems to me that mostly they have been good at repackaging and reselling the tech of other companies in creative ways. I've seen this critique leveled at Apple and it makes more sense there (the Mac borrowing heavily from stuff they witnessed at Xerox PARC and the original iPhone just doing what a lot of other phones at the time were doing, except simpler and more mass-adoptable), but what evidence do you have for this applying to Tesla? Even if you admit that battery technology improvements that made EVs viable were implemented elsewhere, the entire automotive industry was 100% behind the combustion engine before Tesla, and now almost every car company is building EVs. This isn't merely Tesla effecting "positive change in the world", they proved that EVs were manufacturable, that the public wanted it, and solved numerous obstacles to actually bring it to market. The EV would literally not exist (to the public) in 2017 if not for Tesla. How is that merely repackaging tech?
- IBM 9y ago
  People who level that critique at Apple are the equivalent of sports fans of rivals to the Yankees constantly talking trash about the Yankees. That is, it may make fans of Apple angry (and it did all throughout the 90s and 00s) but it had no impact on the fundamentals of Apple's business. While people were leveling that critique against Apple, Apple was selling millions of iMacs, then hundreds of millions of iPods, and now over a billion iPhones. Now I would say it's extremely shallow analysis of Apple as a business to say they were just repackaging tech (you don't do hundreds of billions of dollars in revenue over the past 20 years if you aren't actually innovating [EDIT: actually iOS devices alone have done almost a trillion in revenue], especially if you don't have a monopoly in the relevant markets). Tesla is not Apple though. In order for the analogy to Apple to work, Tesla would have to be shipping a massive amount of EVs (and a growing amount as well) while they were being criticized. They haven't. In fact the penetration of EVs as a % of all cars sold is single digits. If you want to take the perspective of the author of the article, then we can at least say that Tesla may have induced rival car makers to at least get interested in EVs and demonstrated a small market exists for them, but it's not clear that once every automaker begins shipping EVs at scale that it's going to replace non-EVs in the market in a significant way. What if EVs just top out at 20%? On another level it's kind of a silly perspective to take because real people have invested their money in Tesla. A lot of them might be rich tech workers who no one will shed tears for, but big institutional investors like Fidelity own significant stakes in Tesla, and they're managing 401ks for regular people. I don't think too many investors who invested in telecom companies during the tech bubble took comfort in the fact that at least society was left with a lot of fiber and infrastructure. What would Tesla even leave behind anyway? The only thing I can think of is the battery factory which hopefully would be able to produce batteries for other manufacturers. But even that is not clear to me since China is pouring billions into doing that as well (and they're going to have a lower cost of capital compared to some private entity without state backing).

dalbasal 9y ago

You're right, but (IMO) only looking at half of the whole. Tesla is spending a lot. More than they earn. Whatever back-of-the-envelope profitability model you attribute to their car making operation to differentiate marginal-operational from capital-investment costs, it does not add up to anything like enough to cover all costs. They cannot cover costs from free cash (as you say) which means they need capital coming in (as you say), debt and equity. But, this doesn't mean they are selling elonmagic. No one would expect a car company to bootstrap, grow from cash flow. The place they expect to be is cash-hungry. This is what accountants are for, figuring out if a company is headed towards profitability when free cash flow is not an indicator. The whole idea is that Tesla will be gradually capitalized to the point where it is like GM or Toyota. Where elonmagic does come in is the same place startup-magic always comes in. It's novel in the auto industry. But, it's bread and butter on crunchbase (or here). Does this company have the potential to create a large, high margin business. The accountant will have a harder time telling you this, and so will annual report readers. It's like answering the question Will Facebook manage to build an advertising business like Goog's? The answer turned out to be yes, so FB is worth a lot of money. Valuation of FB at IPO time was essentially the aggregate investor's answer to that question at that time. Elonmagigic plays a big role in that 2nd part, unavoidably. This seems reasonable and to me. Accounts are accounts. Sometimes the story is simple, and accoutns tell a simple story. Sometimes the real story is there, but takes context, digging and smart accountants to tell properly. Some important parts of the story are not in the accounts, like the fact the Tesla can apparently produce a faster supercar than anyone at 1/4 of the cost.

DennisP 9y ago

Most of the new financing is debt, which I referred to above. The new equity is only $472M for the first nine months of this year. Their operating loss over the same period is $570M. As I also said, most of what they're spending is capital expenditure, amounting to about $3B. I.e. the basic story here is simple: they're borrowing a bunch of money to build new factories, which is exactly what you would expect a new car company to do.

kgwgk 9y ago

To be fair, Amazon issues shares to give to employees. The dilution is not huge but it’s real and helps to keep cash-flows positive and make the company look more profitable than it is.