It Gets Worse: Tesla Now Has To Compete With $50,000 Electric BMWs Going For $54/Month

Authored by Simon Black via SovereignMan.com,

As if things weren’t bad enough for beleaguered Tesla...

The company lost $1.1 billion in cash in the last quarter, executives are leaving the company in droves, it’s facing production issues with its Model 3 and, as I recently discussed, Elon Musk insulted analysts on the latest earnings call by dismissing their questions – regarding the company’s survival – as “boring” and “boneheaded,” (just after shareholders approved his obscenely large pay package).

Now, in addition to all that, the company has to compete with BMW leasing its $50,000 i3 electric vehicle for only $54 a month. That’s not a typo. Bloomberg recently confirmed you could lease an i3 for less than your monthly cable bill.

Lest you think BMW is making money on that lease, I assure you it’s not. The entire EV sector is losing money.

It’s a race to the bottom… Everyone in the space (including Tesla) is competing against each other, resulting in laughably low monthly leases.

But it’s not just the i3. You can lease a 2018 Honda Clarity for $199 a month. A Chevy Volt costs about $100 more each month.

The electric vehicle space is difficult. Vehicle prices are high and there isn’t enough demand for manufacturers to make money (even with generous government subsidies).

EV sales made up just 0.6% of total sales last year. And 80% of battery-electric car customers in the US lease instead of buying (not including Tesla, which doesn’t divulge that info)… partly because the resale value is horrid – an i3 is worth only 27% of its original price after three years.

But the old guard auto manufacturers, like GM and BMW, can sell other, profitable vehicles to plug the gap.

General Motors loses about $9,000 every time it sells a Chevy Volt (a $36,000 car). Fiat loses an absurd $20,000 on each electric Fiat 500 it sells.

And Tesla, the highest-selling EV company, is the granddaddy loss maker of them all. Which is why the company lost a staggering $2 billion on $8.5 billion in sales last year.

Still, Musk maintains his cult leader status amongst shareholders, who believe he will walk across water and change the world.

But the reality is quite grim…

Tesla had $2.7 billion in cash at the end of the first quarter (down from $3.4 billion at year-end 2017). And the street doesn’t think Tesla has enough cash to last another six months.

In addition to its general, cash-hemorrhaging operations, the company will need to pay down a $230 million convertible bond in November if its stock doesn’t hit a conversion price of $560.64 (meaning the stock would have to nearly double from today’s price) and a $920 million convertible bond next March if the stock doesn’t hit $359.87.

While the company’s recently-falling stock price is troubling, the bond market is forecasting real pain for Tesla…

Last August, Tesla issued $1.8 billion of unsecured bonds with a 5.3% coupon due in 2025. Credit rating agency Moody’s downgraded those bonds to B3 (deep junk territory) in March with a negative outlook (they traded at 90 cents then). Today those bonds trade at 88 cents on the dollar for a yield of around 7.5%.

So if Tesla needed to tap the debt markets again today, it would likely be paying around 8% interest on unsecured debt.

And there are likely suckers out there who will make that loan, despite the horrible economics of the EV business…

It doesn’t make sense to have electric vehicles until you have really cheap electricity. If you can get solar down to 1 cent per kilowatt hour, then you have something.

But, for now, you have to charge electric vehicles with energy produced from coal-fired power plants.

I believe Tesla is doing some really cool things. But, under normal economic circumstances, its business simply would not be viable.

The only way this company is able to exist and shower praise and money on an executive that is consistently non-transparent (and is also taking an enormous chunk of the company) is because there is too much cash in the world.

Companies that consistently post losses are able to fool people into loaning them massive quantities of money.

And big investors, like pension funds and mutual funds, are looking for scale. They’ve got trillions of dollars to invest. So, the bigger the investment opportunity, the more attractive it is.

And in a crazy paradox of our time, a company that issues loads of debt is actually a more attractive company than a financially sound one… because these big investors need to put money to work by any means necessary.

Capitalism is upside down today. Central banks have printed money for 10 years.

Now they’re reversing course. And that will have serious consequences.

Companies will get wiped out. It will probably be worse than the “dotcom” bubble. At least with the dotcom bubble, there wasn’t much debt – these companies raised equity.

Today, valuations are higher than the dotcom bubble and there’s loads of debt on top of it.

Warren Buffett famously avoided tech stocks back then. And people said he was stupid as they continued to pump money into a high-flying sector.

It’s the same as today.

People are loaning money to companies that are hemorrhaging cash and facing massive business headwinds.

Tesla is borrowing money and has to compete with BMW that is leasing its cars for $54/month.

As the Federal Reserve, European Central Bank and Bank of Japan all reverse their easy-money policies, they’ll suck liquidity out of the system. That will push interest rates up, which will force people to be more selective with their investments.

And a lot of crappy companies will get wiped out. I’m not just talking about Tesla. Even “blue chips” like GE and other companies that are heavily indebted and aren’t generating solid free cash flow are in trouble.

At a certain point, individuals need to be rational in how they invest their savings.

And if you’re investing in these fantasy, irrational investments, that has consequences.

 

Comments

Mr. Universe Gaius Frakkin'… Tue, 05/15/2018 - 21:51 Permalink

LiPo batteries are the lifeblood of electric powered model aircraft. From rotor drones to fixed wing there is a LiPo battery for all. I'm a Luddite and still fly stick and tissue rubber band free flight models.  All the clubs around the nation warn about charging your batteries and making sure they are safe. Many houses have burned down due to a LiPo charger malfunction or failure. The percentage is small compared to use, but it is a factor.  Batteries do explode in the craft, but the ones I've witnessed are on the ground, never in the air, although I've heard it can happen.  Rubber power goes back to the 1930's and is (to me) way more of a challenge and fun than RC powered. However it has it's perils as well. A fully stretched,lubed and wound rubber motor contains a lot of torque. In fact you wind them using a blast tube (a hard shell tube) that fits inside the fuselage while winding. This protects the model when the rubber breaks. After having a few models destroyed this way, you always use one. My longest recovered flight is 15:40, what a joy to watch. 

In reply to by Gaius Frakkin'…

philipat King of Ruperts Land Wed, 05/16/2018 - 00:09 Permalink

Doing the math on that BMW:

Revenue on a 3-year lease $54 X 36 = $1944

Residual value on $50,000 car @27% = $13,500

Total revenue and residual value to BMW after 36 Months = $15.444

Loss to BMW on each car $50,000 - $15,444 = $34,556

Now, if the BMW is a half decent car, it seems like a very attractive proposition? Just not for BMW!! It must speak to what a shitty market the EV market really is if a luxury brand like BMW has to virtually give away cars and take a $35K loss on every vehicle sold. I guess they will make it up on volume?!!

In reply to by King of Ruperts Land

roddy6667 silverer Tue, 05/15/2018 - 19:53 Permalink

Some EV's are useful. If you could get a Tesla free or very cheap, they could be just be put up on blocks in the back yard and used as the battery for your solar system. People use Priuses for backup at home. They are much better because they can recharge themselves. The Chevy Volt also has an onboard generator to recharge the battery. Of course, you could just live in a country that has a reliable electrical grid that does not fail frequently. In my five years here in China I have never even seen the lights flicker one time. In America, we had power failures. We went without any power for 8 days in CT once.

In reply to by silverer

oneno Stackers Tue, 05/15/2018 - 19:14 Permalink

"It doesn’t make sense to have electric vehicles until you have really cheap electricity."

Very cheap electricity is possible now with the JMCC WING Generator.

One JMCC WING Generator can replace 600 of the designed-to-fail 3-blade wind turbines that on average produce 1% of the (claimed) 1.5 MW design power capacity.

Distributed JMCC WING Generators are scalable and can tie-in to the existing national energy grid immediately making all inert fuel (coal, oil, nat-gas, nuclear) central power plants redundant.

There would be more than enough energy for heating homes and driving electric vehicles.

Solar is a red-herring that is practical for at most 4-hours a day in a temperate climate. JMCC WING Generators will work day or night in regions where the wind blows continuously.

In reply to by Stackers

ne14truth oneno Tue, 05/15/2018 - 19:21 Permalink

What are you talking about....I own a large yacht, SOLAR because wind is crap and the units ALL vibrate apart sooner rather than later. I have spent big money on wind, all a waste, nothing on the boat but solar now. It works, it does not break, it is FAR better than wind. Who the fuck wants to live where it is always windy?

In reply to by oneno

oneno ne14truth Tue, 05/15/2018 - 20:07 Permalink

The JMCC WING Generator is low RPM high torque where there is exponential power production with increasing wheel radius. The JMCC WING Generator has NO vibrate problem as there is with a 3-blade wind turbine.

The linked book states the following on page 45:

The construction of only 300 of the large 1000 foot WING GENERATOR towers in high wind areas of the United States would provide us with eternal free energy for the cost of maintenance. By contrast it would take over 77 million of the 1.5 megawatt 3-blade generators. We can convert to wind and transport the energy from wind areas to the rest of the country on the currently existing power grid (NO SMART GRID NEEDED). The cost of construction of the WING GENERATOR towers would be less than a few nuclear reactors and the social and economic benefits would be passed on immediately. Conversion to a truly electric transportation system with free electric non- polluting power should have obvious benefits. Clearly this will not exactly be popular in certain circles

.

The JMCC WING Generator is scalable so that a reasonable diameter version can be attached to a yacht to produce power day or night. The JMCC WING Generator is low-rpm so that it runs quitely.

In reply to by ne14truth

snblitz ne14truth Tue, 05/15/2018 - 22:16 Permalink

I have been on solar since 1998.  I have tried wind and hydro too.  Wind and hydro break all the time.  My solar inverter lasted from 1998 to 2016 when it blew a relay. $75 later it was back online.

Wind and hydro also need a load diversion controller or the motor goes up in flames.  Just more complications.

In reply to by ne14truth

oneno roddy6667 Tue, 05/15/2018 - 20:19 Permalink

3-blade wind turbines are designed to fail as documented in the documentary Downwind.

The design of the 3-blade turbine was based on the turbo-prop engines of airplanes that would blow wind over a wing to produce thrust and lift. This process is not reversible so that a high-speed wind will NOT turn a 3-blade turbine. These 3-blade turbines actually have a motor to get the blades to spin and then requires a steady wind to keep the blades turning. The problem is where are you going to get sustained sufficiently high-speed winds to keep those 3-blade turbines turning?

The design of the JMCC WING Generator is completely different so that a low-speed wind will be sufficient to create lift on the WINGS that turn the wheel.

The key to the JMCC WING Generator are the WINGS that cause the lift to turn the wheel.

In reply to by roddy6667

DevAJS Village-idiot Tue, 05/15/2018 - 19:22 Permalink

I couldn't care less about 'high performance'.  A forklift doesn't need to be able to drive 200+ miles on a single charge.  If I am going to give up my gas vehicle the replacement better at the very least be able to make it to Columbus Ohio from St. Louis Missouri on a single charge (about 450 miles) and if not it needs to have a gas option.  I personally like the idea, but the tech isn't there yet. 

In reply to by Village-idiot

MaxThrust Village-idiot Tue, 05/15/2018 - 20:46 Permalink

"The problem is, everyone wants to design a car that'll do 0-100 mph in 6 seconds"

So True. I once took a job in a city where I was interested in renting or leasing an EV. It made sense but where I was living did not have plug in power outlet available to charge the car and my parking area at work didn't either so I had to find an alternative. I heard an urban myth once that the GM built EV1 was a popular vehicle and most of the lessees wanted to buy the cars off GM but GM declined and recycled the lot. I guess GM received a phone call from "Big Oil"

On a side issue. There is solar race in Australia each year. Don't know when but it is such a waist of time and effort for everyone. The drivers have to almost lie down flat to drive these cockroach shaped cars without airconditioning in the heat of the  Australian desert and its all about speed. A true race would be that every car is the same make and model and each entrant then adds their batteries and electric drive train to the best of their abilities. The race would be much closer and more exciting and more realistic. who cares if the race is at 100km/hr or 60km/hr particularly if you get to sit upright like a normal human.

In reply to by Village-idiot

any_mouse MaxThrust Tue, 05/15/2018 - 21:46 Permalink

The EV1 was a limited term GM project in the Socialist Republic of California.

Of course, a few socialists wanted to "own" the subsidized cars past the project's lifespan.

GM would have been on the hook to support those few vehicles for eternity.

 

Solar vehicles need to be flat to have the most surface area for PV cells.

As is with most bleeding edge racing the object is to push the envelope of technology. Lighter, faster, longer. Comfort is not a factor in design criteria.

The amount of solar panels required to charge batteries used to power a vehicle would never fit on a personal vehicle.

In reply to by MaxThrust

armageddon addahere MaxThrust Tue, 05/15/2018 - 21:52 Permalink

The EV1 was an experimental model. GM made about 1000 of them for beta testing. They were never meant to be sold or put to permanent use. They were leased for a nominal cost and when the experiment was done they took them back and scrapped them. The whole point of the experiment was to get real world experience in the hands of ordinary motorists, and find out how they would stand up and if people liked them. The experiment was a success and led to them building the VOLT.

In reply to by MaxThrust