3 ms·

Tesla is a growth company. Being "profitable" is irrational and stupid. They should be farming every cent they make into production, borrowing every cent that w

by beat 7y ago

Tesla is a growth company. Being "profitable" is irrational and stupid. They should be farming every cent they make into production, borrowing every cent that will be loaned, and selling stock. Why turn a $1.00 into $1.10 this year when you can turn it into $15 in ten years? This is how startups and growth companies work. Profitability is a very narrowminded view of how to run a company. The goal isn't to turn a profit next year. The goal is to become a bigger company than Apple, to wipe out entire car companies in the process, and to change how we power the cars we drive.

adwn 7y ago
> Why turn a $1.00 into $1.10 this year when you can turn it into $15 in ten years? Because there's a very good chance you go bankrupt in year 3, turning your $1.00 into $0.00 instead of $15. > Being "profitable" is irrational and stupid. [...] Profitability is a very narrowminded view of how to run a company. What a weird, weird thing to say. As if it were straight out of the Silicon Valley TV show.
- 1123581321 7y ago
  Think of Tesla as maximizing the expected value of its entire profitability over its lifetime. Although you would like it to cease investing in new cars and maximize its profitability now, it has a good chance of making a lot more money by continuing to invest in itself. The odds are good that there will be a generation of Tesla cars which primary job is to make money for shareholders, and they will make so much more than is possible now (we can look at the existing automakers for examples of this level of earnings) that the profits exceed the present value of possible profits. It’s different than the scenarios parodied in Silicon Valley, where companies with no business model, who can’t be profitable with their product, posture in order to be acquired to the extent that their founders believe the posturing.
  - adwn 7y ago
    > Think of Tesla as maximizing the expected value of its entire profitability over its lifetime. I'm familiar with the discounted cash flow model of valuing a company. You're missing the point: If they keep losing money, they need more investments. At some point, they won't get any more investments, because potential investors won't believe that the company will be profitable in the future. > [...] it has a good chance of making a lot more money by continuing to invest in itself. Only if they don't go bankrupt in the near future, which is a very real possibility. Then all this talk about growth and "investing in itself" will be useless – they will make zero money.
    - beat 7y ago
      Which happens to a lot of companies. Big deal. You invest in a growth company, you are expected to recognize the risk involved in that investment. At the moment, Tesla seems to have no real trouble raising the kind of capital they need in order to maintain the level of growth they're experiencing. But it's going to take a lot more growth before they're on par with GM or Toyota or the like. And since that's the obvious goal, it's foolish to be "profitable".
    - 1123581321 7y ago
      I do not understand why you are sneering at the idea of re-investing profits then. Same for why the availability and cost of money (equity or debt) would not be something also forecast and planned for by Tesla.
- isthispermanent 7y ago
  Not that weird. Seeking profitability too early can kill a company. Amazon barely turned a profit for almost a decade specifically to shovel money back into the operation. Now you'll say that Amazon __could__ have turned a profit earlier than that. Which is true. For Tesla it is not, turning a profit isn't an option. The difference being that selling books and other things on the internet is relatively easy compared with manufacturing cars using an entirely new set of unproven technologies and techniques. So if we use that model to think about Amazon overwriting retail, then Tesla would be looking to overwrite transportation. Given the difficulties of doing the latter I would expect Tesla to flounder around for another 10 years before it really starts to get going. After that, if they get there (big if), the sky is the limit and the market is Teslas market. That's the point behind the "being profitable is irrational and stupid" comment. Penny wise, dollar stupid. But as it has been pointed out ad infinitum, it's a big gamble. So far Tesla has delivered on product, they'll need to prove that they can deliver on operations for this thing to take off all the way. Juries out, but I'm willing (and do) bet that they'll make it. Too many people (including banks and governments) want this to work.
bb822 7y ago
You're right, the goal isn't to be profitable next year, it was to be profitable this year. Actually, Elon said "I am optimistic about being profitable in Q1 and all quarters going forward," not even a year ago. So much for that. Also, Tesla isn't a startup--they've been in business for more than 15 years. Tesla's annual depreciation outpaces their capital spending, so they aren't even spending enough to maintain their current assets. Last year they missed their planned CapEx by something like $1 billion. Also not something a "growth" company does. That's because they are (and have been) in a precarious financial condition for almost their entire history, only made worse by the recent acquisition of an insolvent solar company in order to bailout you and your family members financial stakes.
- beat 7y ago
  Growth companies are always in a precarious financial position. That is their nature. Default dead, as pg put it. The goal is to achieve market scale, then make that financial position stable and profitable, rather than precarious and feeding on investment.
  - isthispermanent 7y ago
    And if you were to successfully achieve, or begin to achieve, market scale your revenue/income statement would look a lot like this... https://en.wikipedia.org/wiki/Tesla%2C_Inc.#/media/File:Tesla_Financial_Performance.svg https://en.wikipedia.org/wiki/Tesla%2C_Inc.#/media/File:Tesl... It took Amazon about 12 years to get to the same revenue/income balance... http://infographic.statista.com/normal/chartoftheday_4298_amazons_long_term_growth_n.jpg http://infographic.statista.com/normal/chartoftheday_4298_am...
    - bb822 7y ago
      Sure maybe it would look like that if Tesla were in fact Amazon. But Tesla makes cars, they don't sell tablecloths and rent servers. There is very high operating leverage in Automotive manufacturing. Hence why this cycle continues forever: Elon: That's it, we don't need to raise anymore outside capital! 9 months later: Insert equity/bond/convert raise here.

by beat 7y ago

adwn 7y ago

> Why turn a $1.00 into $1.10 this year when you can turn it into $15 in ten years? Because there's a very good chance you go bankrupt in year 3, turning your $1.00 into $0.00 instead of $15. > Being "profitable" is irrational and stupid. [...] Profitability is a very narrowminded view of how to run a company. What a weird, weird thing to say. As if it were straight out of the Silicon Valley TV show.

1123581321 7y ago
Think of Tesla as maximizing the expected value of its entire profitability over its lifetime. Although you would like it to cease investing in new cars and maximize its profitability now, it has a good chance of making a lot more money by continuing to invest in itself. The odds are good that there will be a generation of Tesla cars which primary job is to make money for shareholders, and they will make so much more than is possible now (we can look at the existing automakers for examples of this level of earnings) that the profits exceed the present value of possible profits. It’s different than the scenarios parodied in Silicon Valley, where companies with no business model, who can’t be profitable with their product, posture in order to be acquired to the extent that their founders believe the posturing.
- adwn 7y ago
  > Think of Tesla as maximizing the expected value of its entire profitability over its lifetime. I'm familiar with the discounted cash flow model of valuing a company. You're missing the point: If they keep losing money, they need more investments. At some point, they won't get any more investments, because potential investors won't believe that the company will be profitable in the future. > [...] it has a good chance of making a lot more money by continuing to invest in itself. Only if they don't go bankrupt in the near future, which is a very real possibility. Then all this talk about growth and "investing in itself" will be useless – they will make zero money.
  - beat 7y ago
    Which happens to a lot of companies. Big deal. You invest in a growth company, you are expected to recognize the risk involved in that investment. At the moment, Tesla seems to have no real trouble raising the kind of capital they need in order to maintain the level of growth they're experiencing. But it's going to take a lot more growth before they're on par with GM or Toyota or the like. And since that's the obvious goal, it's foolish to be "profitable".
  - 1123581321 7y ago
    I do not understand why you are sneering at the idea of re-investing profits then. Same for why the availability and cost of money (equity or debt) would not be something also forecast and planned for by Tesla.
isthispermanent 7y ago
Not that weird. Seeking profitability too early can kill a company. Amazon barely turned a profit for almost a decade specifically to shovel money back into the operation. Now you'll say that Amazon __could__ have turned a profit earlier than that. Which is true. For Tesla it is not, turning a profit isn't an option. The difference being that selling books and other things on the internet is relatively easy compared with manufacturing cars using an entirely new set of unproven technologies and techniques. So if we use that model to think about Amazon overwriting retail, then Tesla would be looking to overwrite transportation. Given the difficulties of doing the latter I would expect Tesla to flounder around for another 10 years before it really starts to get going. After that, if they get there (big if), the sky is the limit and the market is Teslas market. That's the point behind the "being profitable is irrational and stupid" comment. Penny wise, dollar stupid. But as it has been pointed out ad infinitum, it's a big gamble. So far Tesla has delivered on product, they'll need to prove that they can deliver on operations for this thing to take off all the way. Juries out, but I'm willing (and do) bet that they'll make it. Too many people (including banks and governments) want this to work.

bb822 7y ago

You're right, the goal isn't to be profitable next year, it was to be profitable this year. Actually, Elon said "I am optimistic about being profitable in Q1 and all quarters going forward," not even a year ago. So much for that. Also, Tesla isn't a startup--they've been in business for more than 15 years. Tesla's annual depreciation outpaces their capital spending, so they aren't even spending enough to maintain their current assets. Last year they missed their planned CapEx by something like $1 billion. Also not something a "growth" company does. That's because they are (and have been) in a precarious financial condition for almost their entire history, only made worse by the recent acquisition of an insolvent solar company in order to bailout you and your family members financial stakes.

beat 7y ago
Growth companies are always in a precarious financial position. That is their nature. Default dead, as pg put it. The goal is to achieve market scale, then make that financial position stable and profitable, rather than precarious and feeding on investment.
- isthispermanent 7y ago
  And if you were to successfully achieve, or begin to achieve, market scale your revenue/income statement would look a lot like this... https://en.wikipedia.org/wiki/Tesla%2C_Inc.#/media/File:Tesla_Financial_Performance.svg https://en.wikipedia.org/wiki/Tesla%2C_Inc.#/media/File:Tesl... It took Amazon about 12 years to get to the same revenue/income balance... http://infographic.statista.com/normal/chartoftheday_4298_amazons_long_term_growth_n.jpg http://infographic.statista.com/normal/chartoftheday_4298_am...
  - bb822 7y ago
    Sure maybe it would look like that if Tesla were in fact Amazon. But Tesla makes cars, they don't sell tablecloths and rent servers. There is very high operating leverage in Automotive manufacturing. Hence why this cycle continues forever: Elon: That's it, we don't need to raise anymore outside capital! 9 months later: Insert equity/bond/convert raise here.