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> 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

by 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.

by adwn 7y ago

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.