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Insightful Reddit comment regarding Tesla’s current financial condition: https://www.reddit.com/r/news/comments/8owkmg/comment/e06xe3v https://www.reddit.com/r/

Insightful Reddit comment regarding Tesla’s current financial condition: https://www.reddit.com/r/news/comments/8owkmg/comment/e06xe3v https://www.reddit.com/r/news/comments/8owkmg/comment/e06xe3...

marvin 8y ago
There are a lot of subtle errors in that comment. Many points contain part of a truth, and some are outdated or based on speculation. I can’t go through it point-by-point now, but just thought I would point out it might not be as insightful as it seems.
- RayVR 8y ago
  If you have an actual response you should take the time to write it or not respond at all. Just saying “don’t have time to explain but this is wrong” doesn’t do much good.
  - Brakenshire 8y ago
    Which competent person is going to have time to sit down, research and write out a point by point rebuttal? A 'one way hash' argument?
    - mkirklions 8y ago
      Someone that wants to be listened to.
  - deleted 8y ago
    [deleted]
- 11thEarlOfMar 8y ago
  One not-so-subtle error: At most they've got 500,000 reservations for Model 3 @ $1,000. That's $500 Million. $500 Million is less than 25% of $2.1 Billion. Another: A German tear-down firm calculated the cost of building a model 3 at $28,000, all-in. So they would make a 20% gross margin on a sale of the base model when it's available. At the moment, you can't buy one for under $46,000. The writer conflates gross margin profit and net profit. As long as the gross margin is healthy, Tesla will have a fighting chance. For example, if they average $10,000 gross margin on those same 500,000 reservations, they make $5B in gross profit $. That's enough to pay back all their debt and finance a large portion of their capital spending. It's all about getting the production line running smoothly, which is why Musk slept on the factory floor for a couple of weeks.
  - rohit2412 8y ago
    Couple of errors here. Reservations are taken for roadster and semi too. You completely excluded (sg&a) operational and (r&d) research costs. I don't see why gross margin is enough to judge profitability. You excluded both operational and research costs, which you can't ignore.
    - compcoffee 8y ago
      >You completely excluded (sg&a) operational and (r&d) research costs. For some reason people think that R&D will go down to nothing, even though the other major players spend multiples on R&D than does Tesla. We've been hearing for years that as Tesla "scales up", these costs will diminish. We're now at, what, 150,000 cars annually? And costs are increasing at an increasing rate. Still waiting to see those economies of scale.
    - rory096 8y ago
      >You completely excluded (sg&a) operational and (r&d) research costs. The grandparent ignored these, but didn't exclude them. Neither line item is included in gross profit. >I don't see why gross margin is enough to judge profitability. While you're right that it's insufficient to judge overall net profitability, it does make sense as a refutation of OP's claim: >Around 40% of their cash in hand is from refundable deposits, many from people who thought they would get a $35k car >Tesla cannot make $35k Model 3s at a profit(this is generally accepted, and even Tesla hinted at it), they'll probably lose money even making $42k cars. They're not-so-subtly implying that Tesla's gross margin on vehicles under $42+k is negative so Tesla would lose money making each unit, and thus those reservation holders hoping for a $35k car will never receive it, depleting Tesla's cash position when they cancel their reservations. It's an erroneous conflation of net and gross margin - Tesla's marginal cost per unit is (presumably) significantly lower than when you factor in fixed costs. That's why we see them making expensive cars first, not because they're precluded from making cheaper cars once they have the spare production capacity by losses on each unit. In other words, OP is claiming that Tesla's Model 3 strategy is "we lose money on every sale, but make it up in volume," when in fact it's a conventional scenario of increasing volume covering the fixed costs at scale with margin baked into each unit.

marvin 8y ago

There are a lot of subtle errors in that comment. Many points contain part of a truth, and some are outdated or based on speculation. I can’t go through it point-by-point now, but just thought I would point out it might not be as insightful as it seems.

RayVR 8y ago
If you have an actual response you should take the time to write it or not respond at all. Just saying “don’t have time to explain but this is wrong” doesn’t do much good.
- Brakenshire 8y ago
  Which competent person is going to have time to sit down, research and write out a point by point rebuttal? A 'one way hash' argument?
  - mkirklions 8y ago
    Someone that wants to be listened to.
- deleted 8y ago
  [deleted]
11thEarlOfMar 8y ago
One not-so-subtle error: At most they've got 500,000 reservations for Model 3 @ $1,000. That's $500 Million. $500 Million is less than 25% of $2.1 Billion. Another: A German tear-down firm calculated the cost of building a model 3 at $28,000, all-in. So they would make a 20% gross margin on a sale of the base model when it's available. At the moment, you can't buy one for under $46,000. The writer conflates gross margin profit and net profit. As long as the gross margin is healthy, Tesla will have a fighting chance. For example, if they average $10,000 gross margin on those same 500,000 reservations, they make $5B in gross profit $. That's enough to pay back all their debt and finance a large portion of their capital spending. It's all about getting the production line running smoothly, which is why Musk slept on the factory floor for a couple of weeks.
- rohit2412 8y ago
  Couple of errors here. Reservations are taken for roadster and semi too. You completely excluded (sg&a) operational and (r&d) research costs. I don't see why gross margin is enough to judge profitability. You excluded both operational and research costs, which you can't ignore.
  - compcoffee 8y ago
    >You completely excluded (sg&a) operational and (r&d) research costs. For some reason people think that R&D will go down to nothing, even though the other major players spend multiples on R&D than does Tesla. We've been hearing for years that as Tesla "scales up", these costs will diminish. We're now at, what, 150,000 cars annually? And costs are increasing at an increasing rate. Still waiting to see those economies of scale.
  - rory096 8y ago
    >You completely excluded (sg&a) operational and (r&d) research costs. The grandparent ignored these, but didn't exclude them. Neither line item is included in gross profit. >I don't see why gross margin is enough to judge profitability. While you're right that it's insufficient to judge overall net profitability, it does make sense as a refutation of OP's claim: >Around 40% of their cash in hand is from refundable deposits, many from people who thought they would get a $35k car >Tesla cannot make $35k Model 3s at a profit(this is generally accepted, and even Tesla hinted at it), they'll probably lose money even making $42k cars. They're not-so-subtly implying that Tesla's gross margin on vehicles under $42+k is negative so Tesla would lose money making each unit, and thus those reservation holders hoping for a $35k car will never receive it, depleting Tesla's cash position when they cancel their reservations. It's an erroneous conflation of net and gross margin - Tesla's marginal cost per unit is (presumably) significantly lower than when you factor in fixed costs. That's why we see them making expensive cars first, not because they're precluded from making cheaper cars once they have the spare production capacity by losses on each unit. In other words, OP is claiming that Tesla's Model 3 strategy is "we lose money on every sale, but make it up in volume," when in fact it's a conventional scenario of increasing volume covering the fixed costs at scale with margin baked into each unit.