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Characterizing negative cashflows from investment as 'burn' is incredibly disingenuous. The cashflows from any capital intensive startup would look similar. Th

Characterizing negative cashflows from investment as 'burn' is incredibly disingenuous. The cashflows from any capital intensive startup would look similar. The cashflows from operation are negative, but not egregiously so. In fact, they are probably dragged down by the increased headcount associated with unreleased products. If Tesla had decided to stop with the model S and X, they'd likely be profitable right now. Your description of their assets is also off. Customer deposits have NO net effect on their balance sheet/equity value. They very clearly have a liability of $686 million to cancel out the cash received.

Hypx 9y ago
https://www.marketwatch.com/investing/stock/tsla/financials/cash-flow/quarter https://www.marketwatch.com/investing/stock/tsla/financials/... Tesla's cash flow from investment was -$1.21B last quarter alone. I can scarcely think of a startup that consumed cash at this rate. That's an annualized rate of -$4.84B. Not even the pets.com or Webvans of the world ever reached this level of "cash burn." Cash flow from operations were -$300.56M last quarter, and losses were $671.16M. Annualized, this puts them at around -$1.2B and -$2.68B per year respectively. If this is due to excess headcount from unreleased products, I say that's crazy and they should stop attempting those unreleased products.
- conjecTech 9y ago
  Sure, the absolute numbers are large. But in percent terms of market cap, they are far more reasonable. To put them in perspective another way, Tesla has around 450k net reservations for the model 3. Even if half of those people cancel, and everyone buys the base unit with no add-ons, that is nearly $8 billion of revenue. I have no idea what acceptable ratios of plant/equipment to revenue are, but that doesn't seem absurd if they can fulfill those orders in 2-3 years and amortize the equipment over 15-30 years. I'm not going to necessarily make the argument that Tesla's share price is rational, but I do think this spending is good for shareholders. The balance sheet equity is a pittance compared to market cap. People are betting on large future profits. And there is just no way the level of production they are currently at could earn enough to justify the price. They have to grow. To grow they have to invest. It's just the nature of the business they are in. I think being in tech gives people the idea that you can create enormous value without capital risk, but that just isn't reality in most of the physical world. I think they are at least being responsible about it. They went out and established there was substantial interest for the 3 prior to undertaking all of this - something Ford didn't do for the Edsel, which in terms of financial sins would be on par with this failing. To get back to the initial point here, I do think the amount of debt they are using might be a bit on the high side if you consider their current and not future revenue, but the capital markets have shown a huge willingness to stomach secondary offerings of the stock, so it seems like they can and probably will remedy that.
  - Hypx 9y ago
    Your argument is a long winded way of saying: The market believes in Tesla, so any and all losses are acceptable. Look, at $671M in losses per quarter, nothing about this company suggest it is viable. Worse, the "cash burn" rate, or negative free cash flow, is an even more astounding -$1.55B per quarter. That annualizes to $6.2B per year! That's how much the capital markets have to fund the company to sustain it going forward. If it wasn't for its high market cap, the company would have folded long ago for lack of funds. It's pretty obvious that current losses like these could easily overcome a decade-plus of future profits. Their debt is already rated a junk bond, so they aren't going to get any good deals on future debt. At some point, you would think, surely rationality will set in. I mean, Tesla is not the only EV manufacture in the world. Wouldn't it make more sense to invest in another car company that is also making EVs, and have finances that look much more appealing? Why would anyone subsidize a company just to produce a product that others can easily replicate? At some point, this has to stop.
    - Cthulhu_ 9y ago
      > Why would anyone subsidize a company just to produce a product that others can easily replicate Because you, and I think a lot of people, think Tesla is a car company. It's not; Tesla is becoming a battery company and a charging station company. That will make them as big as gas companies, because everyone will be needing both batteries and electricity, even if they need to offload their car business. Tesla will be far bigger than just cars for decades to come, and I think that's where a large part of shareholder trust is coming from. I mean how many other EV charging networks are active?
      - bhhaskin 9y ago
        Here is a dirty little secret. Panasonic makes the batteries. Infact the giga factory is really a Panasonic factory.
    - DennisP 9y ago
      No, the market believes in Tesla, and agrees that they should invest their earnings and new capital in building factories. Remove the capital investment and their losses are $570M for the year to date.
kakwa_ 9y ago
> If Tesla had decided to stop with the model S and X, they'd likely be profitable right now. But they can't. A car manufacturer generally has to renew its models every ~10 years with an overall mid-life. Tesla would be profitable if it had a net cashflow including these renewals. I'm not sure it's the case right now because it's difficult to differentiate between capex like building new assembly lines or R&D on core technologies and cost purely associated with the new models.

Hypx 9y ago

https://www.marketwatch.com/investing/stock/tsla/financials/cash-flow/quarter https://www.marketwatch.com/investing/stock/tsla/financials/... Tesla's cash flow from investment was -$1.21B last quarter alone. I can scarcely think of a startup that consumed cash at this rate. That's an annualized rate of -$4.84B. Not even the pets.com or Webvans of the world ever reached this level of "cash burn." Cash flow from operations were -$300.56M last quarter, and losses were $671.16M. Annualized, this puts them at around -$1.2B and -$2.68B per year respectively. If this is due to excess headcount from unreleased products, I say that's crazy and they should stop attempting those unreleased products.

conjecTech 9y ago
Sure, the absolute numbers are large. But in percent terms of market cap, they are far more reasonable. To put them in perspective another way, Tesla has around 450k net reservations for the model 3. Even if half of those people cancel, and everyone buys the base unit with no add-ons, that is nearly $8 billion of revenue. I have no idea what acceptable ratios of plant/equipment to revenue are, but that doesn't seem absurd if they can fulfill those orders in 2-3 years and amortize the equipment over 15-30 years. I'm not going to necessarily make the argument that Tesla's share price is rational, but I do think this spending is good for shareholders. The balance sheet equity is a pittance compared to market cap. People are betting on large future profits. And there is just no way the level of production they are currently at could earn enough to justify the price. They have to grow. To grow they have to invest. It's just the nature of the business they are in. I think being in tech gives people the idea that you can create enormous value without capital risk, but that just isn't reality in most of the physical world. I think they are at least being responsible about it. They went out and established there was substantial interest for the 3 prior to undertaking all of this - something Ford didn't do for the Edsel, which in terms of financial sins would be on par with this failing. To get back to the initial point here, I do think the amount of debt they are using might be a bit on the high side if you consider their current and not future revenue, but the capital markets have shown a huge willingness to stomach secondary offerings of the stock, so it seems like they can and probably will remedy that.
- Hypx 9y ago
  Your argument is a long winded way of saying: The market believes in Tesla, so any and all losses are acceptable. Look, at $671M in losses per quarter, nothing about this company suggest it is viable. Worse, the "cash burn" rate, or negative free cash flow, is an even more astounding -$1.55B per quarter. That annualizes to $6.2B per year! That's how much the capital markets have to fund the company to sustain it going forward. If it wasn't for its high market cap, the company would have folded long ago for lack of funds. It's pretty obvious that current losses like these could easily overcome a decade-plus of future profits. Their debt is already rated a junk bond, so they aren't going to get any good deals on future debt. At some point, you would think, surely rationality will set in. I mean, Tesla is not the only EV manufacture in the world. Wouldn't it make more sense to invest in another car company that is also making EVs, and have finances that look much more appealing? Why would anyone subsidize a company just to produce a product that others can easily replicate? At some point, this has to stop.
  - Cthulhu_ 9y ago
    > Why would anyone subsidize a company just to produce a product that others can easily replicate Because you, and I think a lot of people, think Tesla is a car company. It's not; Tesla is becoming a battery company and a charging station company. That will make them as big as gas companies, because everyone will be needing both batteries and electricity, even if they need to offload their car business. Tesla will be far bigger than just cars for decades to come, and I think that's where a large part of shareholder trust is coming from. I mean how many other EV charging networks are active?
    - bhhaskin 9y ago
      Here is a dirty little secret. Panasonic makes the batteries. Infact the giga factory is really a Panasonic factory.
  - DennisP 9y ago
    No, the market believes in Tesla, and agrees that they should invest their earnings and new capital in building factories. Remove the capital investment and their losses are $570M for the year to date.

kakwa_ 9y ago

> If Tesla had decided to stop with the model S and X, they'd likely be profitable right now. But they can't. A car manufacturer generally has to renew its models every ~10 years with an overall mid-life. Tesla would be profitable if it had a net cashflow including these renewals. I'm not sure it's the case right now because it's difficult to differentiate between capex like building new assembly lines or R&D on core technologies and cost purely associated with the new models.