6 ms·

The biggest cost of any car is R&D. So this article doesn't tell us much.

by pasta 8y ago

dawnerd 8y ago
That's why they say potential cost.
toomuchtodo 8y ago
It tells you what Tesla's margins are going to be, as R&D cost per unit decreases/is amortized over more units as production scales up. Check out their free cash flow [1]. You'll see that it's always in the red before production scales up (Model S first, then the X, and now the 3). TL;DR If production continues to scale up, the Model 3 will be wildly (relatively speaking for the auto industry) profitable (and the battery cost is possibly under $100/kw, which would be big if true). Sidenote: Elon's enormous pay package [2] that was approved requires one final condition be satisfied; four consecutive quarters with 30-percent gross margins. If I had to bet real money, I'd say 2018Q3 is when those margins begin to be realized, his compensation delivered 2019Q4/2020Q1, and his plan to go to Mars accelerate (possibly as a direct SpaceX customer). Sidenote #2: The Model 3's battery pack has the lowest amount of Cobalt in the industry (2.8%, known state of the art is ~8%). Panasonic (Tesla's battery production partner) is currently working to remove the need for any Cobalt whatsoever [3]. Good for margins, good for production throughput, mixed bag for conflict areas Cobalt is sourced from. Can't win 'em all. [1] https://i.imgur.com/HjyKxTm.png https://i.imgur.com/HjyKxTm.png [2] http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pay-package/index.html http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pa... [3] https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OCABS https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OC... Usual disclaimer: TSLA investor
- notenoughstuff 8y ago
  >Check out their free cash flow [1]. You'll see that it's always in the red before production scales up (Model S first, then the X, and now the 3). That's a charitable interpretation. From your link it's nearly always significantly in the red, outside of a couple anomalous quarters 5 years ago, and the one quarter they sold a bunch of ZEV credits. It certainly doesn't look like "it's positive, except when they're scaling up!" to me. I guess one sees what they want to see.
  - deleted 8y ago
    [deleted]
  - martythemaniak 8y ago
    This is because they're always spending money to grow. They do this because they want to grow and are growing. This graph shows you they spent money to launch the Model S, then went profitable. After this they invested to launch the X, then went profitable. Then they invested to launch the 3, and now this year they aim to be profitable again. And you know what they're going to do after that? Spend money to launch the Y and Semi, then go profitable. Can they use the profits from S/X to deliver the 3? Yeah, but not on the timelines that their customers and the market demands. People want their Model 3s today. One sure mark of a hater is that there doesn't exist a configuration of reality that will satisfy their objections. Is Tesla spending borrowed money to accelerate their growth and deliver products sooner? They suck, they should be profitable. Are they using solely their profits to expand more slowly? They suck, because they're having trouble delivering their products on time. Great, awesome contribution.
    - Semirhage 8y ago
      Can they use the profits from S/X to deliver the 3? Yeah, but not on the timelines that their customers and the market demands. People want their Model 3s today. Is it about what people demand, or what they promised when taking deposits?
    - notenoughstuff 8y ago
      >This graph shows you they spent money to launch the Model S, then went profitable. The graph doesn't "show" anything. You are interpreting it in a specific (favourable) way. I don't agree. Also, free cash flow positive is not "profit". >One sure mark of a hater is that there doesn't exist a configuration of reality that will satisfy their objections. Oh, there it is. Any criticism means you're a hater. I'm looking at the numbers. That's reality. You, on the other hand, are operating on future assumptions that may or may not come to pass. "Becoming profitable" isn't a given, just because Elon said so. As of right now, they are losing money at an accelerating rate. I guess we'll see. And by the way, I'm not hater. I can see Tesla being the next Mazda, who make some of the most popular cars in my area. Great cars, great company. Do you know what its market cap is? $8BB. At Tesla's current market cap they need to build millions and millions of cars at substantial profit. You can believe that they'll achieve that and an investment today still wouldn't be worth it. Does that surprise you?
- gamblor956 8y ago
  The Ford F150 makes a gross profit margin of $10,000 to $13,000/vehicle. It sells 800,000 F150s each year, for a profit of $8 billion or more on just the F150s. By the way, F150s sell for about the same as the Model 3. Porsche has gross margins of $18,000 to $23,000 on its vehicles, which are comparably priced to Tesla's other models. Really, if you drill down into the actual numbers, you'll see that Tesla isn't significantly more profitable than other car makers on a per-vehicle basis, and they're certainly not wildly more profitable. With the Model 3, Tesla needs to scale up just be in the black. It would need to sell somewhere on the order of several hundred thousand Model 3s each year to approach the per-vehicle gross margins of the Camry, and more than a million Model 3s each year to achieve the gross margins of the F150. Unless they drastically improve quality control, that's simply not happening.
  - toomuchtodo 8y ago
    “In North America, Ford had a record operating margin of 12.9 percent. This compares with rival General Motors' first-quarter operating profit margin of 8.7 percent, and Fiat Chrysler Automobiles's 7.2 percent in North America.” Note that none of these margins approach 30%. https://www.cnbc.com/2016/04/28/ford-motor-sets-records-for-profit-operating-margins.html https://www.cnbc.com/2016/04/28/ford-motor-sets-records-for-...
    - gamblor956 8y ago
      Are you seriously comparing the operating margins of profitable companies to a company that has yet to make a profit based on its operating activities? (Selling credits doesn't count, that's a one-time stunt.) The numbers for Ford, GM, and Fiat Chrysler include all of their global activities, including their sales of lower-margin cars, compliance cars (i.e., no-margin or negative-margin vehicles, massive R&D, international operations, etc.). You are literally trying to compare the gross margin on a single Tesla model to the overall operating margins of entire companies...that's not even apples to oranges. That's comparing apples to zucchinis.
      - toomuchtodo 8y ago
Maybestring 8y ago
Per unit cost is an extremely important metric to an auto company.
Nokinside 8y ago
Typically the biggest cost per new car is the factory and tooling, not the R&D.

The biggest cost of any car is R&D. So this article doesn't tell us much.

by pasta 8y ago

The biggest cost of any car is R&D. So this article doesn't tell us much.

dawnerd 8y ago

That's why they say potential cost.

toomuchtodo 8y ago

It tells you what Tesla's margins are going to be, as R&D cost per unit decreases/is amortized over more units as production scales up. Check out their free cash flow [1]. You'll see that it's always in the red before production scales up (Model S first, then the X, and now the 3). TL;DR If production continues to scale up, the Model 3 will be wildly (relatively speaking for the auto industry) profitable (and the battery cost is possibly under $100/kw, which would be big if true). Sidenote: Elon's enormous pay package [2] that was approved requires one final condition be satisfied; four consecutive quarters with 30-percent gross margins. If I had to bet real money, I'd say 2018Q3 is when those margins begin to be realized, his compensation delivered 2019Q4/2020Q1, and his plan to go to Mars accelerate (possibly as a direct SpaceX customer). Sidenote #2: The Model 3's battery pack has the lowest amount of Cobalt in the industry (2.8%, known state of the art is ~8%). Panasonic (Tesla's battery production partner) is currently working to remove the need for any Cobalt whatsoever [3]. Good for margins, good for production throughput, mixed bag for conflict areas Cobalt is sourced from. Can't win 'em all. [1] https://i.imgur.com/HjyKxTm.png https://i.imgur.com/HjyKxTm.png [2] http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pay-package/index.html http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pa... [3] https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OCABS https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OC... Usual disclaimer: TSLA investor

notenoughstuff 8y ago
>Check out their free cash flow [1]. You'll see that it's always in the red before production scales up (Model S first, then the X, and now the 3). That's a charitable interpretation. From your link it's nearly always significantly in the red, outside of a couple anomalous quarters 5 years ago, and the one quarter they sold a bunch of ZEV credits. It certainly doesn't look like "it's positive, except when they're scaling up!" to me. I guess one sees what they want to see.
- deleted 8y ago
  [deleted]
- martythemaniak 8y ago
  This is because they're always spending money to grow. They do this because they want to grow and are growing. This graph shows you they spent money to launch the Model S, then went profitable. After this they invested to launch the X, then went profitable. Then they invested to launch the 3, and now this year they aim to be profitable again. And you know what they're going to do after that? Spend money to launch the Y and Semi, then go profitable. Can they use the profits from S/X to deliver the 3? Yeah, but not on the timelines that their customers and the market demands. People want their Model 3s today. One sure mark of a hater is that there doesn't exist a configuration of reality that will satisfy their objections. Is Tesla spending borrowed money to accelerate their growth and deliver products sooner? They suck, they should be profitable. Are they using solely their profits to expand more slowly? They suck, because they're having trouble delivering their products on time. Great, awesome contribution.
  - Semirhage 8y ago
    Can they use the profits from S/X to deliver the 3? Yeah, but not on the timelines that their customers and the market demands. People want their Model 3s today. Is it about what people demand, or what they promised when taking deposits?
  - notenoughstuff 8y ago
    >This graph shows you they spent money to launch the Model S, then went profitable. The graph doesn't "show" anything. You are interpreting it in a specific (favourable) way. I don't agree. Also, free cash flow positive is not "profit". >One sure mark of a hater is that there doesn't exist a configuration of reality that will satisfy their objections. Oh, there it is. Any criticism means you're a hater. I'm looking at the numbers. That's reality. You, on the other hand, are operating on future assumptions that may or may not come to pass. "Becoming profitable" isn't a given, just because Elon said so. As of right now, they are losing money at an accelerating rate. I guess we'll see. And by the way, I'm not hater. I can see Tesla being the next Mazda, who make some of the most popular cars in my area. Great cars, great company. Do you know what its market cap is? $8BB. At Tesla's current market cap they need to build millions and millions of cars at substantial profit. You can believe that they'll achieve that and an investment today still wouldn't be worth it. Does that surprise you?
gamblor956 8y ago
The Ford F150 makes a gross profit margin of $10,000 to $13,000/vehicle. It sells 800,000 F150s each year, for a profit of $8 billion or more on just the F150s. By the way, F150s sell for about the same as the Model 3. Porsche has gross margins of $18,000 to $23,000 on its vehicles, which are comparably priced to Tesla's other models. Really, if you drill down into the actual numbers, you'll see that Tesla isn't significantly more profitable than other car makers on a per-vehicle basis, and they're certainly not wildly more profitable. With the Model 3, Tesla needs to scale up just be in the black. It would need to sell somewhere on the order of several hundred thousand Model 3s each year to approach the per-vehicle gross margins of the Camry, and more than a million Model 3s each year to achieve the gross margins of the F150. Unless they drastically improve quality control, that's simply not happening.
- toomuchtodo 8y ago
  “In North America, Ford had a record operating margin of 12.9 percent. This compares with rival General Motors' first-quarter operating profit margin of 8.7 percent, and Fiat Chrysler Automobiles's 7.2 percent in North America.” Note that none of these margins approach 30%. https://www.cnbc.com/2016/04/28/ford-motor-sets-records-for-profit-operating-margins.html https://www.cnbc.com/2016/04/28/ford-motor-sets-records-for-...
  - gamblor956 8y ago
    Are you seriously comparing the operating margins of profitable companies to a company that has yet to make a profit based on its operating activities? (Selling credits doesn't count, that's a one-time stunt.) The numbers for Ford, GM, and Fiat Chrysler include all of their global activities, including their sales of lower-margin cars, compliance cars (i.e., no-margin or negative-margin vehicles, massive R&D, international operations, etc.). You are literally trying to compare the gross margin on a single Tesla model to the overall operating margins of entire companies...that's not even apples to oranges. That's comparing apples to zucchinis.
    - toomuchtodo 8y ago

Maybestring 8y ago

Per unit cost is an extremely important metric to an auto company.

Nokinside 8y ago

Typically the biggest cost per new car is the factory and tooling, not the R&D.