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Tesla Loses More Than $4,000 On Every Car Sold
Last week, following the latest abysmal (if only in GAAP terms) quarter for Tesla, we showed what we thought was without a doubt the most important chart for the company that has taken "story" to the next level: its cash flow, or lack thereof, and the stunning observation that in just the first six months of 2015, Tesla burned $1.1 billion in cash. Its current cash levels? Just $1.2 billion more.
The problem, judging by the collapse in its stock price after its Q2 earnings, others are starting to notice too, such as Reuters. And now that the growth "story" has taken a back seat following the latest guidance cut in deliveries, fears that the company will have to dilute shareholders to keep the "story" afloat, are rapidly emerging. Case in point, Reuters calculation of a fact that was known to most observers but certainly not to retail enthusiasts who "bought the stock just because others bought the stock", i.e., that Tesla loses about $4000 on ever car it makes.
The Silicon Valley automaker is losing more than $4,000 on every Model S electric sedan it sells, using its reckoning of operating losses, and it burned $359 million in cash last quarter in a bull market for luxury vehicles. The company on Wednesday cut its production targets for this year and next. Chief Executive Elon Musk said he's considering options to raise more capital, and didn't rule out selling more stock.
Musk has taken investors on a thrill ride since taking Tesla public in 2010. Now he's given himself a deadline, promising that by the first quarter of 2016 Tesla will be making enough money to fund a jump from making one expensive, low volume car to mass producing multiple models, and expanding a venture to manufacture electric power storage systems.
Now that might be tricky, because unless like AMZN, Tesla has a seriously underestimated source of profitability (we have yet to hear of the Tesla Cloud), the company has just pigeonholed itself and is willing to trade off its growth "story" for cash burn. Which with nearly virtual certainty, results in about a 30-50% cut to forward multiples.
Another glass of cold water for TSLA fanboys are comparisons to GM, whose market cap of $50 billion was recently seen as within reach of Tesla. There are, however, some notable differences:
GM sells more than 9 million vehicles a year, while Tesla plans to build between 50,000 and 55,000 cars this year. Tesla, most of whose cars are built to order directly, delivered 11,532 cars in the second period and said it had an operating loss of about $47 million, for an operating loss per car of about $4,000. Tesla's narrower margin for error is just one more way in which it is different from its century old rivals.
So if the car, pardon, battery, pardon hyperloop market can't "grow" into every possible direction its visionary founder wants it to, on the back of unprecednted cash burn, just how will TSLA grow, or rather shrink, into its balance sheet?
The company said it plans $1.5 billion in capital spending this year, mainly to launch its Model X, battery powered sport utility vehicle with eye-catching, vertical-opening "falcon wing" doors. Tesla reported $831 million in capital spending during the first half of the year, indicating it will spend roughly another $700 million.
During the second quarter, Tesla said operating costs and research and development spending rose, while average selling prices for the Model S lineup, which starts at $70,000 before federal and state electric vehicle tax breaks, fell 1 percent as the mix of sales shifted to less expensive models and a strong dollar hit revenue generated overseas. The Model S comes in several different versions, ranging in price up to $106,000 or more, depending on options.
Elon Musk's - and TSLA shareholders' - hope is that Tesla capital spending will plunge next year because the company won't be spending on a major vehicle launch. In 2017, Tesla plans to launch its Model 3 line, which the company says will start at about $35,000 and push total sales toward the goal of 500,000 vehicles a year by 2020.
However, Barclays analyst Brian Johnson disagreed with the company's estimates, and said he expects Tesla's capital spending will go up in 2016 and 2017 as the company ramps up its battery factory and Model 3 development. "Their small scale means the cash generation is not as great as they might have hoped for," he said.
Worse, as noted top, at the current cash burn rate, TSLA can only fund just two more quarters of cash burn at which point, and most likley well before it, the company will have to aggressively raise new capital.
Sure enough, Musk said this week Tesla expects to have $1 billion in cash over the next year, and told analysts "there may be some value" in raising capital "as a risk reduction measure."
Some more troubling comparisons: Tesla's stock is still about 70 percent higher than it was two years ago, and 8 percent ahead of its level on Jan 1. With a market capitalization of $31 billion, Tesla is worth more than Fiat Chrysler Automobiles NV, the much larger maker of Ram pickups and Jeep Grand Cherokees.
"A capital raise, given the way they're burning cash today, given the fact that they have future investment needs, seems very likely at some point," said UBS Securities analyst Colin Langan, who has a sell rating on the stock.
Reuters reminds us that Musk has steered Tesla out of tight corners before. In September 2012, the company faced a cash crunch, but raised money by selling shares and renegotiating the terms of a federal loan. The Model S started production in mid-2012. One
Oh and let's not forget the infamous February 2014 "incident", when Morgan Stanley underwrote a massive $1.6 billion convertible for TSLA the day after it more than doubled its TSLA stock price target: a move which would be grounds for a criminal probe in any country not controlled by Wall Street.
Which brings us back to our favorite topic about TSLA: GAAP vs non-GAAP, and a divergence that should inspire at least one FASB probe into the farce that Tesla's financials have become. Presenting exhibits A and B:
EPS:
... and Revenue (yes, non-GAAP revenue, which is now flat since December 31, 2014):
Finally the mainstream media has finally figured this out too:
Tesla reports its finances in a different way from the Detroit automakers. Using the generally accepted accounting principles, or GAAP, used by GM or Ford, Tesla's operating losses per vehicle have steadily widened to $14,758 from $3,794 in the second quarter of 2014.
But Tesla points out in its statements to investors that its GAAP accounting excludes certain revenue and profits from Model S sedans that customers lease. In the second quarter, the deferred gross profits from Model S leases amounted to $61.9 million, Tesla said. Analysts say they add back the deferred revenue to make Tesla's figures more comparable to the reporting used by other automakers.
If more start pointing out that the car-making emperor's clothes are made out of non-GAAP thread, as we have since 2012, things Musk will go sour very quickly. In fact, we will conclude with Reuters' own assessment of the situation in gratitude that at least one media outlet finally admitted what we have been saying since 2013: "It's crunch time for Tesla Motors."
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That's inconceivable!
Fuck Apple and iphone , a crippled device over priced and meant for non tech shitheads who like to think they are cool
EVery Samsung smart phone runs circles around iCrap.
Lots of idiots believe the iphone was the first smartphone. WRONG.
Palm and Samsung had smartphones LONG before Crapple.
Sure they lose $4000 on every car sold, but they'll make it up on volume....
Who didn't see this coming? Does anybody on ZH believe TELSA won't be the recipient of tax payer bailout in the near future? Chicago Boys economics and crony capitalism at its finest.
Tesla can join DeLorean soon. Elon Musk making more money off the Space-X program.
As Toyota, Honda and others catch-up.
"I have said I would focus on the economy like a Death Ray! My good friend here, Elon, has generously funded our campaigns. That is why I am announcing a 3,000$ subsidy to all buyers of Tesla Motors!"
I'll bet he loses $40K per vehicle ! Who"ll go $50 ! God I love numbers, whatever it is it's never enough. Tesla bashing, it must be Sunday.
JHC - and Elon Musk is supposed to be a business guru? Sounds like an idiot who doesn't do well in figuring out costs in order to price his product with some gross margin worked in so he can, you know, grow the business.
Reminds me of one of my high school friends who started a plastics injection molding company, making small parts for automotive and assembly-required furniture products. I'd moved out of state for a few years after school & life brought me back to my hometown so I stopped in on his business to catch up with him & ended up working there as they needed someone to do purchasing, inventory management and quality control & I needed a job. All of those areas were a mess...long story short, I eventually found that they had been quoting on business using just the cost of raw material and adding a penny or three that was to be their "profit".
They didn't include any of the overhead...not the mortgage/lease of the building we were in, not the utilities it took to light the building, heat it (it was in Michigan for crissakes), to run the 8 molding machines, etc. He didn't even include the cost of paying his employees! So he was losing a good amount of money on each piece those machines produced - when I discovered all of this & told him he needed to raise his prices to cover his costs, he kind of laughed and said he'd lose half his business if he were to pass that kind of increase on to his customers.
Eventually, I got him to do it on a couple pieces of business that were the worst in terms of negative GM% but my constant mentions of needing to do it across the board & offering to make a visit to these customers to explain to them our need to increase our prices or at least find out where our competitors were on their prices took its toll on our relationship. I left the business to take a better job & before my friend was no longer my friend.
I found our later on that he eventually did do the across-the-board price increase thing (was either that or closing for good) and his business didn't suffer nearly as much as he'd feared - and the business he did lose was a blessing in disguise because it freed up a couple of his presses to do jobs that were actually profitable. I got a beer and a "You were right all along" out of the deal....and my friend back. (PROFIT)
Tesla has a really high valuation compared to GM/Ford/Fiat/ no doubt about that, but,
that said Tesla has some interesting future revenue streams. That Tesla has certain strategic
synergies with Solar City. Tesla has announced the home storage battery unit, a device selling into the home
energy market and if Tesla would cross-promote Tesla sales to Solar City sales and vice versa,
that gives them sales targets, that Ford and GM don't.
Frankly, Tesla should offer a deal, where they put a Big Solar Carport at your house, and sell you
the Car, the Solar Panels, the Battery Storage system all in one package.
Also Tesla is posturing to be a major component supplier into automotive.
GM makes about $650 per vehicle and has no plans to create any new rev streams. They also took a huge bailout from DC. I would be surprised if they are not owned by a European or Japanese maker in the next decade, their cars suck anyway! The American car companies would not be what they are without Gov't handouts either; WWII, Eisenhower Interstate system, Chrysler bailed out 3 times in the last 50 years, military contracts, etc. No different than Tesla. I cannot think of ONE major technological advancement that was not subsidized by the gov't. In fact, Tesla is subsidized by the gov't strictly because they are offering a well priced solution for future combat missions that will not rely on a huge supply chain. Tesla will get more capital because they have huge potential for return. And, as has been written about at lenght on ZH, capital is looking for risky investments. Wait until they release their sodium based batteries for transportation.
Having never earned a profit in any adventure he has ever undertaken, aside from a personal profit in the form of salaries and bonuses from his paid positions, Elon Musk has a real shot at going down in history as the single greatest griftor of all time. Bar none, Charles Ponzi included.
It's hard to hustle new types of tulip farming these days. Heck,tried to move any South Sea paper? Nope, the future is the hustle.
@Roanman. I think he trousered over $165 million in ebay stock from the sale of PayPal in which he was the major shareholder. Not so?
So up the price by $5000. Tesla is the apple of automakers. The true believers will buy no matter what the price.
You see, the people who buy these cars are people who also own the stock. So paying just another another $5 grand is great opportunity to enhance their ponzi portfolio.
What if people who own the stock, get the car on a lease, and pay for the lease on Tesla stock profits... What if they could no longer afford their lease because the stock is no longer profitable?
Fuck you Musk.
Operation of Tesla and SpaceX are more about perception of Musk than running a successful business. Where does one get so much capital to tie up in order to have so much money to loose (I wonder aloud to myself)???????
Elon Musk = Silly-Con Alley Sham Artist and Taxpayer Parasite.
Id jump into the car building thing if I could. But its kinda hard to compete with the big boys when they dont have to make any money. How is an honest person to compete against that?
The Tesla will hang around in the dining car on the gravy train until it stops. Just like the big boys.
Yes, this company is a crony capitalist model of our time. At least, however, the Tesla team is making something tangible. I would rather see them succeed as a success story in America rather than JPM, GS, BAC, etc.
Is it sold with a fireproof business suit ?
Elon musk and his shit, tell us about your SpaceX ridiculousness.
This is a long read, but quite entertaining: http://heiwaco.tripod.com/moontravel.htm
I bought a 2 bd home on 2 acres,with a 24V solar system,inverter,Xantrax charge controller,well,and private road,for $6,000 less than one of their cars..There's 2 Amerika's now,the medias version,and the real version,where homes outside of major cities,and immigrant flooded rural areas,are still being given away for less than the price of used cars..
So in other words wallstreet is in a crunch to create another bullshit fantasy company that makes things look better and gives people hope.
I'd buy a clean burning coal car .... I think coal has mre BTUs than gasoline .... by weight or volume .... and is less explosive than gasoline .... and less fire prone than electric .... it's time for a second look at coal !
Yes a good look at coal would be very nice.
Never forget in business that it takes no skill whatsoever to sell a $1 bill for 90 cents.
Musk is VW's best salesman
Yet recently, Tesla/Musk bought $92m of asset backed paper from Solar City/Musk.
Second coming of the "Match King"?
Tesla and Uber the new team ?
http://www.foodworldnews.com/articles/26090/20150710/uber-and-tesla-migh...
Despite risking eternal hatred from my (dear) fellow ZH readers..., Seeing Tesla - or to be more precise Musk - failing is not in my top favourites lists. I like the guy for several reasons, one of them being self made and contrarian to main stream business. Thinking out of the box (paypal, cars, space etc) is something we need and, at least, aspire to.
I understsand all downvotes for the electric car bollocks, but that's not my main point. Seeing that fat Omaha Fuck or Gates cunt fail is fun, but not Musk. Don;t you think so?
What makes Musk special? He is another pig feeding at the teet. Let him play on the level. Then maybe we can see what he is made of.
I gotta laugh at the idiots that post here, trolls most likely to keep people away from the most exceptional development in cars and batteries that has come down the pike in centuries. Having an electric car that tripled the range of any other rival, while maintaining the high performance features of an electric car is quite an accomplishment. Voted the highest score ever in safety, crushing its nearest pistion driven rival, and also being that it is the fastest production car in history in the same package, ground breaking by any measure.
The development of the lithium/ion battery in the last 15 years made this possible, more developments are coming in the pipeline to reduce weight by 20-30%. So the question being asked the future clients will be, do you want more performance? Or more range? Or faster charging? Personally 2.8 sec 0-60 mph is more than fast enough for me.
Nice writing style. Almost like a sales pitch?
I've driven the Model S a few times now. It's a goddamn fun machine. I'm spooked about buying one because I really don't know if that company will be around in ten years, or the the real infrastructure to support it will ever be erected. That'd be a shit deal to have an expensive Eveready Wagon rusting on the driveway with zero manufacturer support.
Also, hauling around those gigantic batteries, that's alot of EM inviso cancer beams to have parked under your bean bag, roasting your seed sauce as you roll down the US Highways in search of post apocalyptic maidens with whom to breed.
I'll be sticking with Audi.
If you had bought Telsa stock five years ago..you would be up 1137%...I think now is a good time to sell..
Everyone wants to hate on the guy, but if they weren't building new infrastructure for a new product, they wouldn't have lost money, right?
IBM had this same issue when they were building the IBM 360 - they bet so much on it, that if the 360 hadn't been a success, even IBM might have gone under. Of course the 360 went on to be a foundation for an even larger IBM success story.
True, I don't like govt subsidies - but if the govt wasn't subsidising everyone else in the automotive space to begin with ...
Despite the accusations of hype, they are actually building something that works well, is innovative, and might be further refined in the future (and also move from niche product to something more middle-market and thus much higher sales volume). From that perspective, I am ready to cut the guy some slack.
What ever happened to the Chevy Volt?