Let's frame this correctly.
Between 2003 and Jan 1 2018 Tesla sold LESS then 300,000 cars.
In 2019 they are on pace to sell OVER 450,000...in one year with Gross sales near the $30 billion level. How quickly these "supposedly" mountainous debts get CRUSHED under the avalanche of cash flow. Yes that is scary to 2016 Tesla...except the 2019 Economy is LARGER then the entire 2003 through Jan 1 2018 economies combined. They are oh so close to being the #1 selling car in the US. An american company with made in the USA pedigree regaining the #1 spot for the first time in decades. While doing it at the fastest increase in sales in vehicle history and less then 2 years from rolling out the first M3.
The better question is "how does Legacy Auto respond to losing upwards of $30 billion sent to TESLA in lost sales over 5 qtrs that was THEIR money even just one year ago? That is a LOT of payroll to cover on $30B less sales. How long before layoffs and contraction? TESLA isn't the baby gorilla in diapers stumbling around anymore. This is now an Alpha Silverback with the energy sector ready to pounce creating King Kong.
10
The author leaves out other options: Existing debt holders roll over their maturing bonds, albeit for a higher interest rate. Not great, but it buys time. Oh, and how about convertible bonds, which would include an option to exchange the bonds for stock at a later date.
Neither of these options are as clean as simply paying off the debt, but companies rarely pay off maturing outstanding debt in full. Debt is a way of life in business.
Finally, to say that losing money and building up debt is not a sustainable business model is simply stating the obvious. Tesla's business model is to keep investing in the business and eventually turn profitable. Jeff Bezos pursued the same business model at Amazon to great effect--all while Wall Street pundits told people how foolish they were to invest in an unprofitable company.
7
Electric cars are the “cars of the future”, and they will be for a very long time. The Tesla Business Plan was always about taxpayer subsidies to wealthy car buyers + heavy federal regulation whereby a conventional car manufacturer, e.g., Ford Motor Company, would be forced to purchase Tesla.
Elon Musk, America’s greatest Crony Capitalist. His worst nightmare: November 2016. Oops.
No care. Can't wait for the future of self-driving electric cars. Go Tesla and Elon Musk!
3
As of Q2, there are about 17,000 brand-new, Model 3 vehicles, unsold, undelivered, perhaps unfinished, waiting for some sort of miracle, perhaps needing more work, more parts, or additional testing before they can be sold, if they can be sold. They are described by Tesla as being "outside the factory gate" so they can say they've been "produced." Except no one knows if they are saleable.
"Tesla is just an amateur niche manufacturer in a world full of pros. And that would be OK, except for its idiotic market capitalization of around $50 billion, its ballooning mega-losses, its cash-burn, and the fact that it is jimmying its production numbers in an existentially desperate effort to pump up its share price."
source: https://wolfstreet.com/2018/08/01/tesla-discloses-worst-quarterly-loss-e...
1
What a nonsensical piece this is. Not so sure Elon’s Musk should be compared to other “Silicone Valley visionaries “. Elon is actually working to improve the quality of life; the likes of Matt Zuckerberg, Sergey Brin are merchants at heart who are looking at ways to fleece the public
No one said that Elon Musk is a God. He’s a brilliant thinker - and fallible like all human beings - who’s actually trying to improve the world with his inventions. No significant technological improvement is easy. There’s a lot of trial and error and Tesla investors seem to understand that.
How many rockets crashed at take off, before NASA put a man in the Moon. Moody’s also appears to be fine about the company’s bonds. It will take a bit longer, but Elon Musk will prevail.
9
I was a Model 3 reservation holder, but decided a few months back to ask for a refund. I wrote an op/ed about it for Business Insider: https://www.businessinsider.com/tesla-stock-price-model-3-no-intention-o....
Ultimately my thinking boiled down to this: when the Model 3 was announced, Tesla was the only legitimate EV manufacturer in the world. Now they're up against everybody: Mercedes, Ford, GM, Honda, Nissan, Toyota, etc.
Unfortunately for Mr. Musk, the game is over.
2
I'm a trader, I have sold my stake in Tesla, Tesla cannot be profitable, in a sustained way. Elon wasted Tesla capital that he could use today. To buy Solar City, Solar City was debt laden, had very few customers, but as luck would have it, the company was owned by a Musk family member.
Elon has vision, but he can't execute on that vision. Tesla has competition coming, and while it may not sound like a big deal, it will become a big deal, since those car makers build ICE cars, so the losses that they will initially take on their EVs, their ICE sales will make up for it. But they will develop nice high end EVs.
EV maker, Nio, (means blue sky coming) can build luxury EVs, at 1/3rd the cost of a Tesla, they are faster, seat 7. Nio, has a presence in Europe, they have a factory in the US, and they have the worlds record for the fastest autonomous car, (attached video). Nio even has a formula 1 EV, that wins. Their cars come with built in AI, they charge faster than a Tesla. Make no mistake the Chinese can build cars, and by 2020, you'll see many Nio's on the street, here in the US.
Go to the 3:30 mark.
https://www.nio.io/video?video=https%3A//vimeo.com/207882887
https://www.nio.io/
Then there's Lucid, they just got a 1 billion dollar investment from the Saudi's that Elon claimed to have funding for his going private tweet. These are awesome EVs, and the owners helped Elon develop Tesla.
https://mashable.com/article/tesla-saudi-arabia-lucid-motors/#.Uv4uEp8eiqw
If I was in the multi-billionaire class, and I am not, nowhere close, I would write Mr Musk a check for a couple of billion for stock and take it private. Forget the Saudis.
I would ask him to sleep more, in fact make it a condition, hire smart operations people and let them run the companies and focus on whatever he does best. The problem with brilliant entrepreneurs sometimes is not having the ability to let go and allow other to help make the companies succeed.
Then maybe quit dating movie stars and singers or keeping it low profile till your companies become profitable and quit accusing people of pedophilia? makes you look like a freak and not a serious entrepreneur.
3
Maybe you're right, maybe you're wrong, but we know that at least Musk has taken a different approach to the Silicon valley crowd, he actually produces something tangible, Space X launches satellites, Tesla make cars and Solar city provides alternatives to fossil fuels. Granted, he's not Facebook that provides , something , I guess, and would mean something if it disappeared like mypace Or google , a monopoly that should have been broken up a long time ago so people can have alternatives to search for, well , you know what they search for.
5
I stopped taking this article seriously as soon as I hit this line:
"There’s the brain drain: the sudden departures of Tesla’s chief accounting officer and its head of human resources."
Seriously, Mr. Cohan? In one of the most innovative, visionary engineering companies on the planet, you think the "brains" are in accounting and HR?
24
@Steve They were getting out before the upcoming collapse - insiders know first, the public is last.
@Steve for running a large sustainable company, maybe.
1
"There’s the brain drain: the sudden departures of Tesla’s chief accounting officer and its head of human resources. "
While there may be a shortage of experts in such critical technical specialties as machine learning, the departure of any certified public accountants, figure clerks, book keepers, and personnel administrators can hardly be called a brain drain.
Tesla's real challenge will be the embrace of electric car technology by the established players such as Ford, GM, and Toyota, though I suspect Tesla has carved itself a permanent niche in the luxury market.
15
@Robert M ironically, while the smear Merchants keep talking about Tesla Killers, Elon has said, from day ONE that they want to ACCELERATE THE TRANSITION, not dominate the market... Climate change IS real and ELECTRIFICATION is critical...
4
There is still no acknowledgement from electric car proponents that these cars are still not viable for a large segment of Americans. The 250 mile range claimed by many shrinks into nothingness when you wake up in Minneapolis and it is 20 degrees below zero outside. Can you drive that Tesla 90 miles and back on a single charge? With the heater on? Can you afford to take that chance? With your family in the car? No, you cannot. So don't try to have the government shove these things down the throats of every American. It would simply support the notion that progressive are not deep thinkers.
6
@Steve
Sounds like someone's never owned a Tesla.
Everyone - this is not at all how Tesla ownership is.
However, it is the experience of many petrol engine cars in extreme climates. They simply do not start in many cases.
Don't let the Military-Industrial Complex and Russian Trolls shove oil cars down your throat!
3
@Steve
Well it's a good thing that less then 750,000 units will be sold in ALL of 2019 while 2020 shows no greater then 1.25 million domestic US sales. So yeah, Electric car makers aren't that worried about what's best for everyone tomorrow. The interesting thing about genius is that before you even have figured out the correct way to frame the problem...They are halfway to the solution. SpaceX took 5 years from disposable to a reusable rocket landing onto a floating pad in the ocean less then 150 feet square. Do you think battery tech might improve avg range from 250 out to 400+ in 5-7 years when even MAX PRODUCTION INCREASE year over year STILL isn't half the US sales?
2
This is nonsense, Romit Shah downgraded Tesla because he didn't approve of Elon Musk's behaviour, it had nothing to do with financials as he stated in this interview: https://www.cnbc.com/video/2018/09/11/nomura-analyst-tesla-no-longer-inv...
3
This line - "This is a harsh lesson that other Silicon Valley “visionaries” have already learned. Amazon’s ....... have all weathered personal criticism and skepticism about their companies’ business models by mostly delivering what Wall Street always wants: steady and ever-increasing profits"
That is the true moral of Mr Cohan's story. Wall Street is great and entrepreneurs and tech visionaries should help them get rich. Mr Cohan and his Wall Street ilk are precisely the reason why Tesla should be private.
6
Musk will walk away with billions, a good portion of which was funded by tax payer money.
4
@I Am The Walurs
Crisp calculations and great research. What a very thorough and enlightening perspective!
3
This doomsday scenario is ridiculous. Tesla is on the verge of some enormous profit, and will have enough capital to pay its debts. I presume this is common knowledge, but the cost to manufacture a Tesla will be significantly cheaper than traditional vehicles in the long run because there are less parts to produce. They also have a more efficient and less costly distribution channel than traditional franchise operations which saves the company a lot of capital. A Tesla requires less maintenance and servicing and eliminates having to go to the gas station, which makes the cars attractive to buy. I strongly believe that this company is not going to go bankrupt anytime soon, despite its huge obligations. Wall Street is going to disparage this company for the foreseeable future because they want more Tesla stock.
7
@Elliot Then "bet the house" but not I, said the Fox.
2
@Elliot A model 3 costs far more than a competing mid-sized sedan, is range-constrained, and uses inferior materials to competitor cars at similar price points. It is sold by a company with tremendous teething pains related to manufacturing, delivery, service and an inability to maintain fit and finish of rivals. If you want to drive an EV and are willing to endure these deficiencies, that's fine. But understand that for the general car buying public that is EV-agnostic, TSLA makes a terrible product when measured against these competitive qualifiers used by consumers. If you do not care about driving an EV (as most people do not), a TSLA is a non-starter as a consideration for purchase by the BROAD market.
2
@Gene Fattore
Brilliant deduction. So here's what you miss: Tesla is creating a market and therefore needs robust margins on relatively expensive cars. That logic should be clear, so...
The BMW 3 Series is basically the direct competition for this car, since Mercedes C series and Audi's entry level are both pretty much jokes. BMW market share for this segment has fallen dramatically beginning when Tesla 3 reservations began.
So while you refer to the general car buying public thinking Tesla is a terrible product, you're simply not stating facts. Tesla ownership loyalty leads the entire industry, trading pole position with Porsche for customer loyalty.
See, above are some facts. They are readily available and useful for day to day living in reality.
If Tesla wanted to be a starter in the BROAD market, they'd be bankrupt like all of the shorts and think-they-are CEOs said they would be.
Just because Amazon bled money for years and is now successful means absolutely nothing for Tesla. Amazon is an outlier. The vast majority of companies that never turn a profit go out of business. Maybe Tesla will succeed. Its fundamentals strongly suggest that it will not
2
Very interesting article and I'd agree that Tesla is wrapped up in something similar to what was maybe felt with Apple, where the biggest marketing tactic was its owner.
As a side note, other US companies that have more than $10 billion in debt and negative operating income are:
Dell Technologies
Exxon Mobil
General Electric
5
@Chris Voigt
Nice! Well researched.
@Chris Voigt XOM is highly profitable, you are not backing out tax reform charges. GE not as profitable but still not losing &, tax & insurance charges in Q4 2017 as well. I assume Dell had a tax charge in Q4 2017 as well. Tesla's ability to lose $ & burn cash are unmatched at this scale
The following quote is just rubbish: "Wall Street fell in love with Tesla and, so far, there has always been plenty of money for Mr. Musk and his electric car company, then for his space company and then for his tunnel-boring company." Wall Street has been shorting Tesla stock since its IPO. Tesla stock has done well in spite of Wall Street. This article smacks of the arrogance of a "master of the universe" whose "love" or lack thereof, makes or breaks a company. It has been the retail investors who really believe in the mission of Tesla that have kept the stock price lifted.
13
Presenting the facts about Tesla/Musk is like presenting the facts about the Catholic Church or Trump. The true believers are religious fanatics who will never wise up and accept reality no matter how compelling the evidence may be. After it all finally collapses they will be saying it was some conspiracy. Human nature.
11
@John Binkley ABSOLUTELY AGREE. I am regularly called a "troll" or someone "working for the forces of evil" (the ICE car companies) whenever I post a fact that illustrates TSLA's financially unsustainable model on Electrek, which is a TSLA fan boy site. It is very unfortunate to read the comments by some of the fans. What they state as "facts" unveils the cultish following Musk enjoys. I have even been cursed by posters for mentioning the Model 3's shortcomings, such as price, operating condition limitations and quality issues. All of which are well-known facts but heresy to Musk's faithful.
3
@Gene Fattore
You've never owned a Tesla. That's a fact to unveil.
Why this article right now Tesla gets clicks? Telsa has invested a large amount of money to build the factory and the gigafactory, hence the debt and has only been selling the cars in large numbers for six months. Give them a year or so more to streamline operations and then see how things are going. People forget, in a electric car the battery is the heart of the car, not the engine. Telsa has control of the battery production, unlike any other company, this will pay off in the coming decade, others will scramble to keep up.
5
@Sam M. TSLA "invested" virtually nothing for its Fremont plant. It was "given" to TSLA as part of the Obama administration's handling of the GM "bankruptcy". The price was $40MM and JV partner Toyota was "convinved" to "invest" $50MM in TSLA to pay for the plant. The Gigafactory has largely been paid for by Panasonic and state of Nevada subsidies. TLSA has survived to date in large part on the largess of government support, particularly State of CA CARB-mandated ZEV credits.
As a current owner of Model 3 I can tell you that you may be good investment banker but a very myopic prognosticator.
Not that I expected something of value from your article.
4
Mr. Cohan, you're about two months too late. Your advice would have been sound following the second quarter, particularly:
"Mr. Musk promises investors that Tesla is going to start making more cars and profits any day now, but that’s wishful thinking."
Check out the surge in production during July and August:
https://www.bloomberg.com/graphics/2018-tesla-tracker/
In the month of August, Model 3 was the #5 selling automobile in the US by volume, and NUMBER ONE by revenue, and Tesla was the #3 biggest luxury vehicle brand:
https://cleantechnica.com/2018/09/20/us-bmw-3-series-sales-have-collapsed/
There's also no new information here, nothing newer than four weeks old. So why the hit job now?
Delivering "bad news" like this barely a week before the end of a quarter, with no information about cash flow or profits is the past 2.7 months, is *highly* suspect. One has to wonder if you are conflicted: do you or your clients hold some of the $10B in short positions in the company? Or are you trying to tank the stock, buy low, and then cash in when the Q3 report comes out? With neither a disclaimer nor acknowledgement in the by-line, I have to assume this is the case.
14
Continued smear and FUD (fear, uncertainty and doubt) is escalating by "investment" dirty energy shills all over the place as Tesla is successfully producing the MOST & BEST electric vehicles that will help save the world and... Oh, yes.. Will also take down the lying filthy oil companies destroying our planet.
Big media, such as NYT, Bloomberg, CNBC, Faux, Business Insider are all hawking this garbage... Bought and paid for by old companies that need to die. Read The Tesla Smear | Cleantechnica to see how deep this goes... (Google it... Other analysis will also crop up that'll blow your mind)
I'm with Elon... If he needs to issue more stock, I'll buy it... Millions of us will... Because We want a beautiful future while Cohen's ilk just plunder
4
@Dana Pearson
Tesla cars run on electricity that is mostly produced from fossil fuels. So Tesla alone is not a solution to the 'filthy oil companies" You may presume a Tesla is more efficient in using the fuel than an internal combustion engine, but then you will be overlooking some basic physics. For instance the weight of the battery [hundreds of pounds] carried by each Tesla anywhere it drives.
You may like the futuristic allure of a Tesla and other aspects of it, but wait before counting your fuel savings yet.
4
@Levi basic physics says ICE is 1/3 or 1/4th as efficient as an electric motor. A full gas tank is a couple hundred pounds, BTW. plus the tank itself.
@Levi
"Tesla cars run on electricity that is mostly produced from fossil fuels."
That's patently false. doe.gov if you're interesting in reality.
I say have Apple jump in and let Siri do the driving for us. We can then have Mac trucks and cars.
2
author is ignorant of: 1) how the convertible notes work (conversion price can be adjusted), 2) massive incoming revenue from Model 3 sales, and 3) massive demand without even trying (no advertising, no leases, only selling high margin cars). Pretty worthless article. Twitter has more intelligent insight and analysis.
9
I don't think New Yorkers get the Tesla thing. I live in an upscale Northern San Diego County neighborhood and the cars are wildly popular. Many of my friends have these cars and at every intersection in my neighborhood, you might see 1 or 2. As an owner, they make more sense than gas cars--they don't heat up the garage, they don't leak, they don't stink, they don't make noise and they don't vibrate and they are fun and relaxing to drive. While they are a nobrainer for around town (99% of driving), I also take them on roadtrips in California. Also you don't have to go to the gas station and can feel good about charging your car with the abundant sunshine we have here. Whats not to love? So, for me, this is the future--the iphone. Most of my friends (who all have houses with three car garages and typically two cars) see electric cars in their near future and I see about 10% on my street and with the number growing quickly. Tesla has a real advantage over rivals in that it has a better network of charging stations. I wish they had a better business model and hadn't been quite so aggressive at taking on debt, but the product is frankly, amazing. Musk has my support just because I like my car so much.
13
Elon Musk IS the brand, he is behaving erratically, he is in over his head and making rookie mistakes. The fact that he is making these 'unforced errors' tells me that he is not listening to his advisors. Ego and ideas will only take you so far, sooner or later you actually have to produce results. Musk and his 'go it alone' strategy are showing he is not up to the task. As far as the advice to 'buy the car, not the stock,' ask the people who bought DeLoreans how that worked out for them.
Lastly there is his plan to send people around the moon. Space X has done some great things, but there is an order of magnitude difference between low earth orbit and a lunar trip. If there is a problem they could kill all of the passengers in this stunt. Mr. Musk and his ego are exposing his people and investors to an existential risk.
3
Articles on Musk receive the most bot-like comments of any NYTimes subject. It’s like Musk pays people to defend his vision. Or maybe he sits there and does it himself.
3
@JMF
Actually, we pay him. I can't wait to pay him again.
Musk isn't Tesla's biggest problem, but he's up there. Most CEO's are devoting 100% of their work time to one endeavor, not three. That will naturally cause a lack of focus, even in a genius like Musk.
2
I have sat in Tesla’s at their showrooms in expensive mall locations. They are beautiful cars full of all kinds of fun technology, but to the average American they are financially out of reach.
4
@Skeptical
Maybe average Americans should calculate how much they spend on fuel! Now add oil. Now add the unique, overbearing costs of repairing and maintaining a drivetrain that uses explosions to move a car. Isn't that funny when you hear it - I drive a vehicle that is propelled by thousands of explosions per mile. It's 2018 people, not 1960's Detroit. Look around at Michigan and take in the legacy of our American Car Companies. A city literally destroyed, water poisoned, union jobs lost, etc etc.
2
What if, let's say, the Government made a commitment to turning away from an oil dependent economy to one where a large % of our consumption was in renewable? Said another way, what if the Government, was all in similar to bailing out Wall Street banks in 2008? Might Musk be positioned to be Green Energy's Rockefeller and all his shareholders happy, as in Apple happy?
2
@Patrick Lovell Your theory is sound as long as we use the Federal and State governments to force less expensive products (internal combustion) out of the market thus making significantly more expensive electric vehicles appear to be a good deal. Tesla's products might not have the sales they have previously enjoyed without the significant tax subsidies already applied to these products. Maybe the Fed and State governments should stop taking money from everyone to make electric vehicles affordable to the well off. If Tesla could stand on it's own then it might be a viable product in the marketplace.
1
TESL has been the dream and harbinger of the future. But like so many auto manufacturers of the past, size, lack of production capacity and the rise of competitive models by far bigger entities (GMC with Chevrolet, Audi and soon others) the game gets harder to win. With no profits still after so long and perhaps not enough buyers out there, the magic may be over sooner rather than later.
The recent announcement of a Saudi backer to buy out the stock seems to possibly be only a pipedream and lessened Musk's credibility,
Still sad if it has to be sold off or disappears from the scene.
1
@Ira Cohen Tesla sold more vehicles in the US in August than Audi, Mercedes, Acura, Infinity or Jaguar Land Rover. The Model 3 outsold the BMW 2, 3, 4, 5, 6 and 7 series - all of their sedans *combined*. In fact, only Camry, Corolla, Accord and Civic outsold Model 3 among *all* cars.
https://www.bloomberg.com/graphics/2018-tesla-tracker/
https://cleantechnica.com/2018/09/20/us-bmw-3-series-sales-have-collapsed/
So no, Tesla isn't scared of the "far bigger entities", they already are one.
2
This is why the kind of radical change we need in this country can not come from the private sector alone. No one company can be expected to absorb the enormous startup costs of switching from a gasoline based economy to an electric one. Like all great American achievements, this needs to be guided and subsidized by the federal government, because it is in every American's interest to cut emissions and reduce dependence on fossil fuels. If you think one nutty guy is going to save the world, you're wrong. It never works that way. The nearly limitless resources of the American government need to be invested in a massive, comprehensive effort to go electric, which will be made more efficient by the economies of scale that Tesla alone could never achieve.
4
@Samuel Russell Good point. While you are at it maybe the government should detail eating requirements and eliminate all food products that might not be considered healthy, then regulate how much exercise and sleep each person gets, if you are really aggressive we can get government to tell us how to dress and act.....Or maybe let the marketplace determine what products are available. With oil still very plentiful, the cost of internal combustion will remain a cheaper and more efficient form of travel. Subsidizing consumers to buy the high cost alternative because at some distant point in the future oil might begin to start running out and become prohibitively expensive is just silly.
When Musk and his engineers can sell an electric car that meets the range and cost of internal combustion then he has a product worth pursuing. Asking consumers to buy products that aren't as good but cost much more doesn't appear to be a good strategy.
@Phil
Are you trying to claim that fossil fuels aren't themselves subsidized to the hilt? Do you really think that a gasoline based transportation system is just fundamentally more efficient than an electric one? Oil is only "plentiful" because our government invests enormous resources to make it so. Why did people switch from horses and trolleys to cars in the first place? Because cars were so much cheaper and more efficient on their own, and the thousands of miles of freeways built themselves? Of course not, the auto industry, gasoline industry, highway industry and suburban housing growth industry were all promoted and subsidized by the feds at massive taxpayer expense. And if they poured their money into different incentives, we'd have a very different country.
@Phil, my eating habits don't infringe on your lifestyle. But your driving habits do infringe on mine, via NOx, hydrocarbon and ozone emissions, brake particulates (EVs use friction brakes about 90% less than ICE vehicles), and global warming. It's called an externality, look it up if you haven't heard of it.
That's why we need a carbon tax or cap-and-trade, something to require drivers to pay the full cost of driving. But since about 1995 Republicans have blocked this consistently. Hence the patchwork of loan guarantees (started in 2005 under George W Bush and Republican congress) and other subsidies.
Tesla was and still somewhat is ahead of competition, but is failing miserably to strike the iron while it's hot and that will be their downfall.
Take a look at the Audi e-tron, it will be a very tough competitor for the model S and more models (Jaguar etc.) are coming fast. 2019 Will be a brutal year for Tesla with all the major German car brands releasing new fully electric models in all price classes.
2
@Brewing Monk The incumbents have to pay wholesale prices for batteries and have no charging infrastructure. They have a lot of catching up to do.
3
@Brewing Monk
No, 2019 will be brutal year for ICE car makers. People will switch to EVs in earnest. Investors will finally understand that ICEs will become a niche market. Ask a Model 3 owner you will understand. For years shorts tried to make people think EV will remain a small market. It's not true. People used to think smart phone is a niche market...
Besides, those so called EV competitors are at least 5~10 years behind Tesla.
3
The reason for the debt is the requirement of building a worldwide charging infrastructure and the worlds largest battery factory to make the cars viable for long trips, and to achieve profitability at economies of scale. Not to mention they can't draw on large-scale profits from previous models to pay for the required cap ex. The scale is ramping up now and they are about to move into the black. Demand is high and will only get higher as they drive down costs and the performance of batteries incrementally improves. The incumbent car manufactures are miles behind in terms of battery and charging infrastructure, which is really where it's at with EVs.
2
So sad, Cohan has bought into the short sellers mentality. The cars are selling as fast as they can be produced, and while production isn't where Musk said it would be, it is a steady 4500-5500/week. The car is outselling all other vehicles in its class. That has BMW and Audi/VW scrambling to produce EVs. I see more and more Model 3s every day that I commute to work in the San Jose area. Every day more "Zero Emissions" license plates on newly sold cars.
9
@Kirk Glaser.....a lot of people live in cold climates where electric are not viable. At 20 degrees below zero and the heater on, the range of a Tesla shrinks dramatically.
@Steve that's not Honolulu, however.
The departure of the Chief Accounting Officer and the Head of Human Resources is hardly what I'd call a "brain drain"! The main problem is that the e-car phenomena hasn't yet caught fire. And until the infrastructure is actually in place, only the brave are going to buy one. I emailed Porsche about their philosophy about the mindset of their e-car buyers standing in line at a highway gas station for a freed-up charger say on a long weekend. I have kids, dogs, etc in car. What is the thinking behind what I am supposed to do for between 15 and 30 minutes once I plug in? Filling up with gas takes 5 minutes tops. And where do all these giant batteries go to die? Landfill? Are the rare earth metals recyclable? Etc. Etc. Tesla make a great product. They are just way ahead of themselves.
5
@VonnegutIce9
The VP of supply chain management has just quit today. It is looking like a trend now.
1
Musk did what he set out to do: He changed the world. Those whose only views in life are through money are "disappointed". I am elated.
Our Model S is essentially fueled by our solar system on the roof. With the EV, the PV solar system paid off in just over three years. Now we have free power and car fuel. And EVs have no oil changes, no filters or leaks. No transmission troubles, or muffler problems. No tune-ups, no emissions checks. The electric motor has the maintenance needs of your refrigerator motor - none.
The drawback is the stunning change in our society as much of our businesses, from filter makers to mechanics to muffler shops to transmission shops to parts manufacturers will be out of business much sooner than folk expect. We must be preparing for it now.
8
The electric car will never be a families primary vehicle until improvements in distance and charge time are fixed.
Now a 85 watt Tesla will only go 265 (per the EPA)(this distance is reduced if the air conditioner or the heater is used) and then require a 5 to 9 hour recharging time (do you really want to drive for only 3 hours on the family vacation then have to stop for 5 to 9 hours). These vehicle are ok for high density cities where driving distances are short (but commute times are long).
As for saving the planet almost 65 percent of electricity is produced by coal or natural gas. Electricity is one of the most inefficient transferrers of energy. Between the generation of the electricity and transmission to destination (a charging station) over half of the original calories of energy are lost and by charging of the batteries and then the ultimate conversion to the electric motor to turn the wheels over 70% of the original energy is lost.
Right now Tesla breaks even on the price of the car, due to the fact that other car companies buy electric vehicle credits from him. On the financial side Tesla needs to earn over 300 million dollars a year just to service the debt. Do the math on profit per car and cars produced.
2
@scott allen
Too bad you don't know much about how the Tesla supercharger system works or the range of the Model 3. You can fully charge a Tesla in about half an hour at one of the thousands of supercharger sites across the country, many powered by solar arrays on site. The Model 3 long range has a 310 mile range, often longer on highway trips. That's equal to or better range than a lot of ICE cars and trucks. And how often do most people actually drive 300 miles/day? And how many families have just one vehicle? For now, people could easily use a Tesla (or Bolt, etc) for daily driving and have another for those long trips if they have range anxiety, but in a few years, thanks to companies like Tesla, there will be even faster charging and longer ranges available.
7
@Kirk Glaser
The range of the Tesla is the one put out by the EPA.
The charging time it the one listed by Tesla themselves and is not a full recharging.
There are not thousands of charging stations, Tesla lists only 1,300.
The economic reality is that Tesla will have to find additional funding or declare bankruptcy. So someone in the future will have to build these features Tesla will not exist.
@Kirk Glaser - Some say the trend is that many people will soon have NO cars. With the advent of Uber and scooters and urban lifestyles, buildings have started taking out garages and cities may soon take out street parking to turn into dedicated transit lanes. These are the hip and trendy areas that would be Tesla's target market or at least showcase market. Will the still-automotive hinterland ever warm up to Tesla? I guess that would only leave the wealthy suburban commuters.
My Tesla 3 is the most comfortable, best handling, as well as the most advanced, passenger car I have ever driven (lots of professional reviewers say the same), so the product's value is not in question. All the problems revolve around management's marketing decisions, and expansion financing schemes.
It would be a national tragedy if say, GM or Ford, bought Tesla and buried its advanced technology (or dumbed it down like the Chevy Bolt). Amazon, Apple, or Google could buy and manage Tesla properly, and keep leading the world with advanced American electric transportation. If we blow this opportunity, the moment will pass, and China and Germany will divide the spoils.
10
Experts, real experts on both sides. The best financial people on Wall Street, yet both groups of experts disagree on the foundational question; Will Tesla Survive?
It seems a lot like massive manipulation on both the short and long sides of the game. Every day I check the media and its amazing how subtle the writing is... say something good, but remind us of a recent problem, throw in some doubt, then go back to talking about the current situation... all seems like a big game of conjecture and manipulation.
The only conclusion to make is that in a short time, perhaps only a few months away, the answer that we have been waiting for the last decade will come into focus. Will Tesla turn a profit?
2
Old American expression: "If it doesn't pay, it doesn't stay". The cars are outstanding but they have to be profitable and sold at a price that the market will bear.
Also, the government subsidy on every vehicle is planned to reduce to zero in due course.
Not impossible hurdles but challenging to say the least.
If the following quote from the article is correct, namely that Tesla is "a case study of what can happen when an iconoclastic Silicon Valley entrepreneur, seduced by his own wonderfulness, thinks the rules of the marketplace do not apply to him," then the company's biggest problem IS Elon Musk.
3
It seem pretty obvious to me that Musk is aware of what all the Wall Street detractors say about him, recognize the criticism's validity within the financial market, and doesn't care. Here's a man who says plenty of things suggesting his own socialist mindset, and appears to be driven by ego rather than profit. He seems perfectly willing to drive a company into the ground as long as it makes transformative change (which Tesla has certainly already done).
4
@Dana
Elon Musk has a Socialist mindset? By what measure? The guy is a capitalist through and through. He just recognizes the context of capitalism and the opportunity in EVs much better than you seem to (or indeed than any traditional auto manufacturer did until very recently and arguably still).
6
@Dana You think Elon is motivated primarily by ego?! Yeah, saving the environment, and therefore the world, is way lower on the list for him. Sounds like someone’s projecting
@Dana @Peter @HJ
Yes, I meant he wants to save the environment, but that HE must be the one to do it (ego). Re: socialism, check his own self-identification: "By the way, I am actually a socialist. Just not the kind that shifts resources from most productive to least productive, pretending to do good, while actually causing harm. True socialism seeks greatest good for all." But he's not a politician, so his goals have to be transmitted through the reality of our civilization (capitalism). By the way, don't I say this to denigrate Musk, I agree with Neil deGrasse Tyson on the subject.
The author completely ignores Tesla's secret weapon: We simply have to do this.
Trump can pull out of the Paris Climate accords and try to prop up his buddies in the dying coal industry, but there is a lot of smart money out there that understands the risks of ignoring climate change and knows Tesla has to succeed if we want our grandchildren to have a livable planet.
That reality is what gives Tesla the benefit of the doubt in equity markets, owners, regulators and vendors too. If Tesla was just another Porsche or BMW or Ferrari, making expensive toys for rich boys, I would never have invested in the company.
I'm not alone in thinking this way. Its not altruism and I'm not naively throwing my money away. The fight against global warming is the best insurance policy Tesla could have to guarantee their success.
25
Isn't there some irony in knowing you are getting, based on US percentage of total electrical power generation, 30% of your Tesla power comes from coal-fired power plants?
3
@Nobody We "had to do it" twenty years ago but didn't, and profound changes from irreversible climate change is already happening. What makes you think we'll overlook short-term profits and our own comfort to do it now? Even if we do, why does it have to be with Tesla?
3
@J House Sure, it's ironic and unfortunate, but still about 90% less than the fossil fuels used by an ICE (due to the higher well to wheels efficiency of an EV). Plus coal/oil/gas generation can be (is being in coal's case) eliminated. Gas cannot be eliminated from an ICE. Or rather it only can with a redesign, and in that case why not redesign to a more efficient, lower carbon-footprint system?
Amazon bled money for a very long time. If Tesla tanks now, with cheap gas and loosened fuel economy rules, US Car makers, released from any pressure to build electric cars, will continue to crank out SUV's and Trucks and be totally bypassed by China, Europe and Japan. Ford is already heading that way by abandoning car production except for the Mustang.
3
It's hard to imagine anyone wanting to invest in this company. They don't know how to manufacture. There are unacceptable quality issues with the "pretty" car. Investors have had gold dangled in front of them and now they are puzzled that it is disappearing. Electric is a draw, but this guy isn't the one to turn this country electric. Leave that to the auto companies who know how to build and manufacture a car.
1
@girldriverusa
\Most organizations that test quality give tesla cars high marks. Users report some of the highest satisfaction rates of any carmaker. By what measure do you say they have "unacceptable quality"?
6
@girldriverusa
Read the facts on reviews and ratings. And try driving one. All models are well built cars, and all receive the highest safety ratings. And they are a blast to drive. Think of all the recalls on the big car manufacturers over the years. Tesla vehicles hold their own, and then some. Sure, early Model 3s had some issues, but those are not part of the current production.
1
@girldriverusa building EVs is a totally different animal, and your “companies that know how to build cars” are failing miserably at making EVs that are even half as good as the worst Tesla.
2
Tesla will get the money it needs. Q3 numbers will surprise a lot of the nay-sayers.
In August the Model 3 was not just the best selling EV in America.... It not only outsold every single sedan in BMW's lineup. It outsold every single BMW sedan *combined*
In fact, Model 3 was the 5th best selling car (excluding trucks and SUVs) from any make or model in the US. The only cars that beat it were Camry, Corolla, Civic and Accord.
Model 3 is still in it's production ramp. Those other 4 have cars standing around on dealer lots waiting for buyers. Tesla sells cars as fast as they can make them, and that rate is growing every month! At the rate they are growing, it's not impossible to think that Model 3 could be the best selling sedan in the US within 6 months.
In Q3, Tesla introduced the AWD Model 3 and Performance AWD versions. Those are selling at significantly higher price points.
You'll see, Q3 numbers will surprise a lot of people.
12
@Nobody yup, you are correct. That’s why I’m happy to continue loading up on these cheap Tesla shares as the media keeps peddling their doomsday charade.
2
One solution not mentioned: acquisition of Tesla by an existing auto manufacturer (or someone else). Tesla loyalists will scream that the former (at least) is nuts, but if Mr. Cohan is right, there may be no better choice.
One of the main, and little-addressed, questions is this: can Tesla survive and prosper without Elon Musk? If it can, perhaps it should because it may have to anyway. If it cannot, it is not a real (ok investable) company.
3
It would be an interesting play for the Chinese to purchase Telsa once the stock meltdown starts. The Chinese understand and appreciate electric vehicles and have state subsidized manufacturing prowess with deep pockets. Personally, I'd like Tesla to thrive but, for anyone that watched the Model 3 unveiling, you quickly realized even then that they were really struggling.
1
Until you can pop into any "gas" station, pop in your credit card and plug in your electric car for a quick charge I never expect pure electric cars to commercially take off. There are vast rural areas where Tesla recharging station are few and far between and it is unfeasible to expect long distance driving Tesla owners (or nay other pure electric vehicle) to have to make a substantial detour just to find a place to recharge their vehicle. Until that happens only the gas/electric hybrid variants make any sense for long distance travel and Tesla will continue to be niche market at best.
4
@DonS could not disagree more and I am an owner of 2 Teslas. How often do you travel out of the city. for over 90% of the people, it's very rare. For me, virtually nonexistent. But when I do, i rent or borrow family member car. The car is too good NOT to own and I own the 578th made Tesla S. BUT, I could immediately see the stock needed to be shorted. The math was not going to work and he "hypes" everything inappropriately. And I knew before I received my car.
My car was due in March. They called me 3rd week of December and said they could now deliver immediately. Why? They needed sales in by y/e to continue their "hype" game. It's how he operates till he can't. And right now, he can't.
2
@DonS
Actually it is the opposite. While the electric infrastructure has to grow to make it easier for long distance travel (we have a gas car for that for now), I (believe it or not) have electricity installed IN MY HOUSE! How clever was that. I was going to install a gas station but the paperwork was daunting. I also installed a 60amp 240 charger at my work to charge my car and my co-workers. We don't go to gas stations. When chargers do appear in mass, it will be at destinations like parking lots and restaurants, hotels and shopping malls. The grid is already there.
15
@DonS The fraction of vehicles in those vast rural areas is small. As petroleum sunk costs begin to raise the price of gas it's your guess what will happen.
Amazon and other success stories were not profitable for years. Considering the popularity and quality of their innovative product, investors in Tesla need to look at the possibilities beyond the traditional financial fundamentals.
6
And yet.... the Model 3 is the nation's best fifth selling sedan by units sold, and the #1 best selling based on revenue.
https://cleantechnica.com/2018/09/19/tesla-bloomberg-pravduh-about-tesla/
Tesla as before shown a profit, and when they do, they invest heavily in a new model. Sounds more like Amazon than DeLorean.
And speaking of DeLorean, Tesla produces more cars in a week than DeLorean did during its entire history. No comparison.
13
Another day, another negative Tesla article from the NYT.
Why can't everyone understand basic business principles. Tesla is still a company in its relative infancy competing in an industry that demands staggering amounts of capital.
Tesla continues to invest in its primary car factory in CA, it just built (and continues to expand) the largest battery factory on earth in NV, it is constructing one of the largest solar factories in NY, it continues to invest in Supercharger coverage (and it has already installed thousands of chargers across the world), and it continues to expand its own stores and service centers. It doesn't take a genius to figure out that these kinds of investments don't produce immediate returns. Simply put, operating losses at this stage of the game are completely expected.
Wall Street and money managers always focus on short-term results, and Tesla simply isn't a short-term play. Tesla is investing in infrastructure to survive and prosper in the long-term, and we should all be rooting for its long-term success given it's mission to advance sustainable transportation and energy. If it fails, it will only be because well-funded interests in fossil fuels will starve or attempt to kill it.
30
@JB Everything you said is correct, most importantly needing them to succeed. BUT, you have to balance your capital stack to your cash flow and you have to manage with great judgement. They have missed on both points and will pay for it. I bought my 2 Teslas in Jan of 13 and June of 13 (wife couldn't go back to her Jaguar after driving my Tesla). I've wanted to short the stock ever since. It was clear he overhyped and it was clear to me it would be too costly to pay off.
I expect a prepackaged bankruptcy.
2
@raspell I think Q3 results will tell the tale. If they can generate enough FCF (or close to enough) to pay back the immediate 250M payment, they have a shot (as long as nothing catastrophic happens before the big payment on spring).
@raspell: what a bummer
Of course the problem is Musk. He's the charismatic dreamer who made predictions based on hunches, confused facts with wishes and built an auto company without a real comprehension of the complications of manufacturing, fulfillment or customer support. Remember John Delorean?
When you borrow billions based on smoke and mirrors, sooner or later the illusion is bound to collapse.
3
TESLA electric cars are not smoke and mirrors.
The problem is that someone like MUSK is what humanity needs for all of us to move forward because investors are afraid of RISK until it starts to pay off. If they were in control we should start mining coal again! The money is a problem but society is the reason. The US government should recognize the VALUE of the auto and the maker and BAIL them OUT as if they were a BANK! TESLA does more than any bank ever will for society. We are the problem NOT MUSK!
20
@STONEZEN Obviously not a capitalist I see. Maybe Trump could sell that, no one else. Of course he would want to slip in clauses saving his hotels and golf courses also.
This has been obvious for at least three years to anyone with minimal auto industry and investment knowledge. Tesla is loaded with debt, has chronic operational problems and has never made a dime. And yet a couple of years ago it was worth more than GM and yet Wall Street was still talking it up.
7
Is Tesla really the next Apple? And will Apple even be Apple five years from now? I have my doubts about all of this. Anyway, neither of these are worthy of religious worship. And the inevitable rarely is.
4
The conversion price is $360 not $560
for the bonds that coming due soon.
Please wait 3 more weeks for the 3rd quarter number to come out.
Please check Bloomberg model 3 tracker for now
6
May I can why you still insist to accommodate outdated views on a plant? That have helped so many from cancer to unbearable anxiety... times are changing don't forget to adapt with them.
3
It's a business first. Put that in your hyperloop and smoke it.
Model 3 business is now up and running and pumping out cars...
Selling Toyota volume at BMW prices.
The author needs to catch up.
13
Mr/ Cohen, you act like Musk isn't the one who generated the $11 billion in debt.
1
Cohan was an M&A banker for 17 years. He was a writer before that, and it appears he's returned.
His point is accurate, but - wow - what a lazy bit of bandwagon hopping 'journalism'.
I could get the same noise from Seeking Alpha
4
this article is just more of the same small minded negativity promoted as insight. it is incredibly likely that tesla shows a profit for the 3rd quarter, which then negates the entire premise of Cohan's argument. Musk is not an idiot charlatan. he knows exactly what the Market thinks and feels and has played them to his advantage at every step. while the path has been bumpy, he has done exactly what he has set out to do, make people enthusiastic about electric cars and give them the opportunity to drive the type of car that allows them to be green and cutting edge. he will be laughing at the Cohan's of the world, and it won't be the weed.
12
Like so much that is "Musk," Tesla, SpaceX ... the house of cards begins to fall.
@KevinJ
The house of cards that will put Roscosmos out of business, and possibly Arianespace and ULA with it? Is this the same Musk that went from zero to best selling cars in their category? If he were to stop now and rest, and just take the profits, would that make the situation better, or should he do the same thing with the entire trucking industry and pickup trucks as well?
@KevinJ
This author (and you) may be a bit premature in calling time of death. Let's see the Q3 numbers. If sales really do double, the game has changed.
@KevinJ SpaceX? You mean the company that has launched more rockets than Europe and all other US launch providers combined in 2018, and are now recovering their newest rockets with almost no refurbishment require for reflight? Yeah, dark days.
Brilliant guy, but probably bipolar and in need of someone to keep him on track. He has been a real trail blazer. Hope there will be a happy ending.
2
These articles don’t mention the joker up Musks sleeve: his friendship with other Silicon Valley billionaires. His freindship with the google founders has bailed him out before, and with the environmental mission of the company, I can imagine him being able to convince some of them to invest capital should he need it.
6
The wonder to me as a very early Model S owner is not that the Tesla was and is such a good and complete car, it's that the competition remains so far behind!
My favorite example is the new Porsche Taycan promotional video, beginning with a sensuous tour of the truly handsome exterior, followed by the door opening to a lovely and opulent interior, and then . . . a finger slowly reaches for the Start button.
I quit watching after that -- the idea of having to push a Start button in a high-end electric car seems laughable after 5+ years in a model S, where all you have to do is sit down and it's ready to go.
Vrooom indeed.
8
@B. Turgidson: As a guy who likes cars, I’m sort of surprised pushing a button turns you off. Our diesel Cayenne allows us to go 700+ miles without refueling . It is an admittedly dirty car; we did not know it at the time of purchase. The interior is far superior to my neighbor’s Tesla three. His car also was stuck in his garage, when the doors inappropriately opened and stayed stuck open. It’s been taken back to the dealership a few times over the last year, apparently not the perfect car.
I don’t even mind the key in my ‘66 Land Cruiser.
Elon should put a small gasoline generator in the car, and then the range would appeal to people like me.
1
Everybody in the world has a lot of opinion about Tesla. This author has made a negative piece on Tesla with selectively quoting negative remarks from different sources.
Lets do some maths. Avg price selling price on Tesla Model 3 is 60 thousand dollars. They will be selling around 60 thousand this quarter. Even if we consider margin of 10,000 dollars on each car, they should be cash positive this quarter. Positive by 600 million dollars. Thats is excluding Model s and Model x. That should easily take care of these loan obligations. Now this estimate makes assumption of substantial margin increase with increase in sales volume which is happening without any doubt.
They definitely were loosing lot of money in the previous quarters but it is expected. You need a lot of capital expenditure for setting up manufacturing facilites.
So saying Tesla is not making money is kind of dishonest and half hearted attempt to analyse
4
Tesla is doing fine with a product no one else has. investors can't make a profit and too bad for them. Debtors want to be repaid with their interest, and don't care on whit about innovation and saving the planet. this article is a red herring. Tesla will be just fine as long as the greedy people of the world don't decide to run it out of town just to make a few dollars.
Invest your money elsewhere if you want instant riches (which is why they all cam to tesla in the first place). If you want innovation and new technologies, stick around and feel your karma growing.
4
Tesla will not be allowed to fail, it's too popular for that. A way to keep it afloat will be found, but that doesn't mean it may not be a rough ride for investors--fasten your seatbelts!
5
This reads as a bit of a hit piece to me. I have cogent arguments against every point brought up but, alas, not the time to present my proof here.
Forget the silly Elon hero worship/detractor game, the fact is that Tesla is the market leader in popularity, tech, and VISION. And that credit goes to the whole team of talent there. Elon or not, unless he goes away and takes tech, IP, brains with him, what he helped start will keep on plugging away for quite some time and have more peaks and valleys during the longer upward growth plane.
Renewables are the future. We know this. Objectively. On many levels. Tesla will continue with leadership as we move towards a better tomorrow.
11
You know I will be surprised if Tesla goes bankrupt. They have uniquely attractive products. The demand for them is unprecedented--forget the delays--remember the wait for the Model X. It drives the short sellers crazy, for sure, but I think there is just enough buzz for their product to get them to break even in a few quarters. [I don't think they intend to be profitable very often--why slow development sucking up to Wall Street?
4
@cory pride
But how much of that vaunted order book is solid? And breaking even in a few quarters (how many would you like?) is not going to magic away debt obligations.
4
If only he'd focus on electric cars and let go of this self-driving car thing. Stop marketing to the Jetsons and make cars for Earth 2018.
2
What Elon Musk and his team have achieved is unprecedented. It's super difficult. They did it. Because this has never been done before, some shorts thought this is easy meat. In the past 8 years they fight so hard to destroy Tesla, Now turns out it's turning into hot potato for the shorts. They can't cover their short position.
I see so many new Tesla cars around. The Model 3 is simply amazing. Shorts still think this car lose money. They will be surprised big time.
I will continue to support Tesla for the next 50 years.
10
For years now, people have thought of Tesla as a disruptive hi-tech company, and have priced its stock that way. But such companies work because they have a technology asset (software) for which the incremental cost per unit is approximately zero.
Tesla is an manufacturing company where the incremental cost per unit is significant. Unfortunately, Tesla is not a very efficient manufacturer, and this is why they cannot yet operate profitably. Mr. Musk operated for too long under the delusion that he was running a tech company, and only recently figured out what business he is in.
I hope he can quickly learn the thousands of lessons that GM, Toyota and others have learned in order to efficiently manufacture the most complex consumer products on earth. GM has produced an "affordable" electric car with 200 mile range, while Tesla is still working on it. (Tesla only produces the expensive variants of its "3", because it would lose too much money selling the $35k version.)
9
@Brian
The fact that Tesla only produces the higher end cars belies your statement that they don't understand they are in manufacturing. And the Model 3 is outselling the Bolt by more than 10:1.
But you aren't wrong about how the market prices Tesla. If we compare to APPL, which is also high tech, but a manufacturer rather than a software/intangible company, the multiple seem out of whack. Of course there are reasons for this (potential for explosive growth at Tesla, FOMO, etc.), but they aren't fully rational.
@Brian,
By your premise, the iPhone was not a disruptive technology.
@skeptonomicon
Nope.
1st, the iPhone was fundamentally different from what came before it, whereas a Tesla is just a car, albeit with different internals. But it serves the same purpose, and so not disruptive.
2nd, the iPhone is incredibly cheap to manufacture. The cost is all in the engineering and software. A Tesla has a relatively high manufacturing cost compared with selling price.
And Tesla simply cannot sell a 3 at $35k without losing money ... yet. if they get as good at manufacturing as every other auto manufacturer, then the will be in good shape.
Musk demonstrated there is a market for an electric sedan just as Ford and Chrysler have decided that American consumers don't want sedans.
In 2017, Ford sold almost 900,000 F-series pick-up trucks.
In 12 years of existence, Tesla has sold right around 200,000 cars across the models s3x.
While the technology may exist to make a reasonably practical (although expensive) electric sedan, battery and charging technology doesn't scale well to heavy vehicles with large frontal area and required tow capacity.
I just bought the 2018 Honda Accord Hybrid LX. 42 MPG for $25k, in the quietest, most comfortable car I have ever owned. I let my friend drive it - and to quote him: "I don't know why anyone would waste their money on a Tesla".
I would like to see the Honda Sense system bench marked against Telsa's so-called autopilot. My Accord can get me from one end of the freeway to the other on it's own, if it didn't require me to touch the steering wheel every 5 seconds.
2
@Tom Stoltz
Because even the $35k Tesla will leave the Accord standing still. And the software will update the system for years. And there is no gas. No transmission. Brake fluid, windshield washer fluid, and battery coolant. That's it. And it's the safest car on the road. These are facts. Test drive one. You'll trade in your Honda like thousands of others have already.
2
@Tom Stoltz I just bought a plug-in hybrid SUV that gets 30 miles of range with basically the same size battery as would get about 35 miles in a subcompact, so you overestimate the difficulty of this. In fact, the Model X is already available, and several other SUVs are coming online now. The fact that no pickup (other than a very niche model) is available is not a technical one, but a marketing one. Once people realize the towing advantages that EVs have, they will gain some market share in that market (though I think ICE will hang on there for quite a while due to a slightly more rational range anxiety in some applications)
@Tom Stoltz
You should test drive a Tesla. It will blow your mind. And even the base $35k model will leave your Honda standing still. Besides that let's see the Honda update itself over the next ten years to adapt to customer needs and continuously improve. Oh yeah, you still need to buy gas. I guess the price is the only thing that the Honda has over a Tesla. Btw, the Accord is one of the most popular cars traded in for a Model 3. Glad you're happy. I'll see you in the rear view mirror.
Established car making corporations would love to club this baby to death. How much Tesla's difficulties are effected by the invisible string pulling of behemoth monopolies is an interesting question, but all's fair in love and capitalism.
4
@alan haigh Right, Musk operates like Lenin. He is all about the masses of working poor with his $70k and up cars.
@observer I think you misunderstand my point. I never suggested that Musk is not a capitalist or even that I do not advocate capitalistic political systems. I am, however, a fan of strong anti-trust regulation and consider the monopolistic trends of ever larger corporations with ever more power over the government troubling, as I'm sure would our founding fathers if they were available for interviews.
As a retired investment banker, I've seen this movie before - a brilliant entrepreneur (and Musk is definitely that) brought down by a combination of hubris and greed. Many commenters here seem to have misread Cohan's intention as to criticize Musk per se rather than simply to highlight his error, no doubt in the (vain) hope to help him or the next brilliant entrepreneur succeed. Regardless, if for nothing else, Musk will be remembered for paving the way toward fully electric cars for all of us, hopefully before we cook the planet.
10
@Michael
Musk made errors, there is no doubt about that. But the author is overestimating the downfall of Tesla. It is still quite possible for them to recover. The Q3 results will probably tell the tale.
Tesla is a money losing, highly indebted new entrant in the mature, low margin auto business. How much can its equity be worth?
8
@Steve
But Tesla's margin is much higher than traditional. Yes, their debt level is higher relative to revenues, but one would expect that in an auto startup, even one that becomes successful. Even traditional auto companies run new models at high debt. The difference is they have other profitable models to offset (not the current low price of Ford, which if because of a need to revamp too many models at once with too few profitable ones to offset - or that is the market feeling, I tend to disagree).
Tesla is a walking a fine line, but it is a line. It remains to be seen whether they fall off it or not.
We need to focus on Tesla's organizational governance. Elon Musk is a courageous visionairy, but he fails to see that he needs to hand over the reins of his company to an experencied CEO as soon as possible.
The Tesla organization is way beyond its initial development stages, and now it practically screams for seasoned management to guide it to organizational adulthood.
5
I used to own stock in Tesla- emphasis on used to. Tesla has many problems & made lots of mistakes.
1- Musk foolishly gave away hard won intellectual property that can now be used by any carmaker without paying royalties. That money and the value of those patents would be nice to have right about now. His act gave competitors a cheap way to quickly catch up in EVs.
2- While Tesla missed deadline after deadline, the rest of the industry has closed the gap. VW has gotten religion after the Diesel scandal and it's Porsche, Audi and VW marques will be coming to market with a broad range of cars and SUVs. They- unlike Musk- know how to build a car and ship in volume. BMW, Daimler & Toyota are also moving quickly now.
3- The choice of the old GM (later GM/Toyota) plant in Fremont locked Tesla in to some of the highest labor costs & most expensive regulatory compliance costs imaginable. Note that almost every new production plant for years has been built in the non Union South in places with relatively low labor costs. California locks in high fixed costs for manufacturing & Union organizers are still trying to organize the plant.
4- As the fleet of Tesla cars age, expect to find scarce resources to support them. You can get parts for a 10 year old Subaru, but what about a Model S 10 years from now?
5- Keeping the Supercharger network exclusive keeps costs high & misses an opportunity to monetize the investment.
Expect the company to be bought on the cheap out of bankruptcy.
4
@David Gregory
1. It is in the company vision to bring change to the auto industry. Giving away the patents is part of that vision. If you don't buy into that vision, sellING was a good idea.
2. The "competition " will be cell limited for at least the next 5 years, leaving Tesla plenty of room to lock in market share.
3. The south lacks the tech training Tesla needs. California has that. Remember Tesla is NOT a car company, they are a tech company. But as they make most of their money from cars, this is your best point.
4. You are assuming Subaru is more likely to be around than Tesla. Considering Tesla's sucess and Subaru's lack of electric lineup, I doubt it.
5. It is not Tesla keeping the Supercharger network exclusive, they have stated they are open to licensing. No one is taking them up on it.
You can expect GM to go bankrupt AGAIN and ma not come back this time. Ford I expect to suprise us and come out with an electric lineup when we least expect and narrowly miss bankruptcy AGAIN. European national brands will be bailed out by their government and creak by but as shell of their former selves.
11
@Will Meek
Tesla is a public company and that means making money and wisely managing assets. Giving away stuff is not good business.
VW- including Audi & Porsche- will be rapidly infusing the lineups with fully electric & hybrid cars. They are the largest maker on the planet & make more outside the EU. They willl crush Tesla from below with VW in the middle with Audi & in above with Porsche.
I am not a Musk hater, but he has spread himself too thin. When Steve Jobs returned to Apple, he largely moved away from operations at Pixar and it worked out well for both. Musk is at SpaceX, Tesla- which incorporates Solar City, and his Boring Company and god only knows what else.
I agree regarding GM, they have become dependent upon massive and overpriced SUVs that guzzle gas. GM, Nissan and Fiat/Chrysler have been buying market share by financing anyone with a pulse. If the economy shifts and either/or fuel/credit goes up in price, they are done for.
As to Subaru, they are partly owned by Toyota and have access to Toyota’s hybrid and electric technology. As a smaller company they can also move faster than a behemoth like GM. They make solid stuff and have survived and thrived even as most smaller companies have been bailed out (Volvo, Land Rover, Jaguar, Fiat/Chrysler) or tanked (SAAB). Subaru will be fine.
I still own my VW ADRs (VLKAY) and am considering my options as VW is terminating the ADR program. My bet is that VW comes out better than most- if not all - over time.
@David Gregory
The big companies have anounced all manner of electric vehicles to be produced over the next couple of years. Current Tesla vehicles are already ahead with the electric platform and other advancements than what will be released by the other guys in the future. Even the recently anounced Audi eTron fails miserably in range and power (looks also, but that's an objective opinion). Until they make a real true comittment to EVs, Tesla will continue to be way ahead of all of them in technology, customer satisfaction, and overall desirability. My neighbor is ready to trade in his Eclass MB for a Tesla after seeing it one day in my driveway. Another isi lamenting his recent BMW purchase. The car practically sells itself. The only way to get ahead of Tesla at this point is to try to trash them and drag them down. It won't work. Everyone and their neighbors love Tesla's cars.
If debt were the only problem, Tesla would be fine...
1. Declare bankruptcy
2. Discharge debt
3. Restructure
Sure, the investors would take a bath, but the pieces of the company would be worth more together than apart and Tesla would continue.
However, my impression is that the real problem is with the cost of producing cars. Tesla hasn't been able to drive down production costs so they are losing money every time they sell a car.
This one is a lot more difficult to get out from under...
3
@Richard E. Willey
Your impression is not correct. They are making money on the cars but spending it faster on capital expansion. Musk is tired of the financial markets so I expect capital expenditure to fall to the point that it is funded solely by profits from here on out, starting this quarter. In 2025 they may raise some capital but I expect they will retire their debt before then.
10
Musk and Tesla has always been more about hubris than about genius.
8
@Larry Figdill
And yet they persist.
1
Y’all didn’t understand Amazon, either.
11
@Holden Korb
Very few people understand Amazon. Amazon makes very little if any money on its e-commerce business. Most of its profits come from its side business of cloud storage, which has almost nothing to do with selling stuff. It's as if Tesla broke even on cars had a little side business doing tax returns or something and that generated all its profits. Unfortunately it isn't even close to breaking even on cars, and has no profitable side business nor prospect for one that I know of. So I wouldn't tout the Amazon model.
7
Musk's managerial and engineering incompetence burdened Tesla with $11 billion in debt. Unless Musk can find immensely deep pocketed suckers, I mean invertors, Tesla will be absorbed by an auto manufacturer with managerial and engineering competence.
By the way, to say that "Wall Street is a confidence game" is to say that it is a con where suckers get dry cleaned.
6
@Jack be Quick
Most of that debt isn't due until 2025. They have time to pay it.
2
Pshaw. $11B? Tiddlywinks.
I can’t wait for all the comments about how people want to see Musk fail. Facts are facts. Tesla is a terrible company. Elon Musk is a liar and a fraud.
3
@Jake
All real evidence is to the contrary. Try a little independent research.
5
Let's be clear about that last sentence...Musk is not, has never been, will never be a genius.
5
@wlieu
Well, I don't know how YOU define genius, but in MY mind anybody who can read textbooks about rocket engine design on his own and understand it well enough to start the most progressive and successful company currently launching IS a genius.
Not to mention Paypal, which first made him rich. As far as I know, none of his companies has gone bankrupt yet (unlike that former TV celebrity that is now trying to wreck the country).
I agree with many of the writers here: Musk has enough ultra-wealthy friends for whom a billion or two is kind of an afterthought that it is unlikely Tesla will go bust. It seems everyone who drives one loves it...that's a pretty good formula for success.
Even if Tesla does fail, he will have achieved his purpose of making electric cars mainstream. So if it goes bankrupt, he still wins, but if it does not (and I do not think it will) he will have a win-win.
2
@wlieu
I suggest reading his resume. You you don't change your mind then I question your intellect or motivation.
@wlieu he's certainly more of a genius than you, though.
With respect, you’ve got the math somewhat right but be careful what you wish for.
I’ve owned a Tesla Model S since March of 2017 and it’s hands down the best car I’ve ever had. Yes the torque is thrilling and it’s very fast; but it’s also the most stable car I’ve ever driven and- in spite of it’s unrelenting targeting- the safest car on the road.
Elon Musk did what no car company in the world was able to do and he swooped in at the fussy high end with a solid business plan predicated on climate friendly cars and fabulous customer focus and service.
I come from the SF Bay Area where many decades ago we (they) had trolly, small rail and ferry service that linked San Francisco with cities in the East Bay. Instead of building on that those systems were destroyed and replaced with automobiles at the behest of vested corporate interests.
Elon Musk has been Lazear focused on enterprises to improve society, Sure the guy’s quirky - get used to it.
13
I find it hard to believe that these cars won’t have their own particular maintenance issues that require interventions by professionals that are costly just like gas-powered vehicles
5
@Max
Maintenance is much harder for machines that involve high temperatures, high pressures, and liquid cooling systems. For electric vehicles, batteries will have to be replaced, of course, and brakes, alignment, etc. will be about the same as internal combustion vehicles. But an electric vehicle will never throw a rod, need spark plugs, rust out a gas tank, and so on.
16
But how will large quantities of used batteries be handled from both a logistical and environmental stance? And what about when these cars are in collisions or floods? Ask any firefighter about opening up an electric car to rescue the occupants.
2
@seattle expat
Excellent summary.
I never took Econ 101 but how can you trust any company that only exists becuase o federal government loans to pay its debts to banks and vondholders before it even turns a profit?
I have a friend who recharges that Tesla every day at work and it looks really good, but do you know anyone who's Tesla was needing parts? How long is that wait?
1
@L'osservatore
Exactly why you should avoid GM and Ford. Stick with Tesla since they are actively avoiding government money since paying back their ONE loan.
2
@L'osservatore
You're afraid of things you don't even know exist?
Also, do you trust petroleum companies and/or is their products? How about big ag and food?
Pfft.
Well, in spite of himself , lets hope Musk makes it. The Teddy Roosevelt comment tells it all. The electric car will succeed partially due to cheap fuel, and partially due to almost zero maintenance charges! There is room for all; GM,Ford, Chrysler, BMW, Mercedes; VW. There is room for Tesla. Here's cheering them on!!
18
On hot summer days every year, cities all over the world have power supply problems yet a growing electric car fleet is supposed to be feasible? As far as maintenance being mostly about replacing batteries, these units are heavy and require special equipment as well as special disposal procedures. And no one outside the volunteer firefighters I know is noticing the anger posed to them, vehicle occupants and the public when these cars are involved in collisions. These are certainly not 12 volt systems.
1
@Jean Louis Lonne
Most balanced comment on this post. I congratulate you!
@From Where I Sit
Solar and wind power solves that. Just need to take the petroleum companies out of the conversation. And all Teslas have 5 star crash rating. Number one for safety in each of their respective segments. You literally cannot buy or ride in a safer car. Look it up.
11 billion debt is a highly exaggerated number. Most of it is Solar City debt - which essentially was arbitrage business. They provided financing for solar panels
Similarly 1.7 billion dollars in operating loss number makes no sense. What needs to be looked at is cash flow statement not GAAP accounting. The author does not understand the difference in GAAP, non-GAAP and cash flow accounting or is paid not to understand it.
Very briefly in Tesla's case:
Non GAAP = GAAP + add back back stock based compensation (Note this is a non cash charge. A correct way to value it would be to look at percentage of dilution).
Cash Flow = Non GAAP + Depreciation + Amortization + various deferred revenue (like car leases).
Amazon and a number of tech stalwarts are valued purely based on cash flow. At this point in Tesla's history GAAP losses do not matter, only operating cash flow does. Period ! And despite whatever you read in main stream media before the model 3 ramp up started Tesla was cash flow positive for a few quarters (Don't trust me pull out investor letters from Tesla website). This quarter again it will be cash flow positive despite Model-3.
21
Precarious is correct, but is your analysis considering all of the available data? The rate of production is well understood and documented, in the last month of Q2 there was a large ramp-up. With some ups and downs, Q3 production has been at strong clip. Tesla is working hard to deliver these vehicles and book revenues. They are selling configurations with highest price and margins and have been. There is absolutely no sign of fading demand.
To be sure, making $11B more than it spends in the next 14 months is effectively impossible. But your piece and others tend to look at this as all-or-nothing. As you say, it's a confidence game. At a fundamental level Tesla is doing a lot of stuff right: exceptional product, highly rated, extremely safe, best EV specs by far, battery factory, massive untapped markets.
They will certainly be able to present impressive Q3 numbers in a few weeks. If anything impresses the markets, it's rate of change.
At some level, I would think this puts Tesla is out of existential danger, although ownership and management may change a lot over the next year or two.
16
@tom
I think some of the concern is the that the rate of production may not be truly sustainable. I do not think a short-term production increase would be all that convincing to a discerning investor until it holds up over time.
Prediction:
Tesla collapses financially and Apple comes in and buys it at a fire sale price. Teslas are IPhones with wheels, and once the wheels have been figured out, which they have been, it's all downhill from there. I can just see Tim Cook -- OK, maybe I'm wrong and it's Jeff Bezos looking for a delivery company -- hoping to get it right at the nexus of when production is finally running smoothly at scale and the investor money has run out.
1
Bailout. It's happened before.
If the government had decided to try to kickstart electric cars ten or fifteen years ago, it would probably have spent 100 billion by now and we'd have three little cars cruising around LA.
I am no great fan of Musk, except what he actually accomplishes, but it seems he has done this nation a great favor by plunging headfirst into new technologies that others are eagerly following. Without him, would we have an electric Chevy or an electric Ford Focus (which has largely gone unnoticed). I saw an ad today for an all EV Audi. No Musk, no Audi, in all likelihood.
I am not convinced that electric cars are the only wave for the future and, for one thing, there is still air pollution involved in generating electricity to charge them. When we can close that loop, generating by clean, renewable means, electric cars will mean much more than they do now.
Still, those batteries can only do so much. What's the necessary range to be a true replacement for gasoline power? 400 or 500 miles with rapid recharging would have great appeal.
Whatever the future, Musk should get credit, and perhaps some government funds, for starting us on our way. Let's buy the company, take it out of its misery and re-sell it to the public in ten years or so.
6
@Doug Terry California's electricity mix is already rather clean and for some areas, 100% renewable. That's not "when we close that loop" but rather "now that we are well along with closing that loop."
If the rest of the U.S. were as carbon efficient as California, it would cut US carbon emissions by aroudn 40%. And it isn't the weather. A handful of other states have as low per capita carbon emissions, including Vermont, New York, Massachusetts and Connecticut which have cold winters and muggy summers. It can be done, at least in places with a will and the ingenuity to do so.
11
@Doug K
Yes, places that import many of their manufactured goods and have moderate climates can have a far lower per-person carbon emission rate. There was a recent article in NYT on this. This is not to say that some areas are not "greener" than others, but that some of the most common metrics cited are full of NIMBY-inspired distortion.
In everyone were to go buy an electric car now, there is a good chance we would have to ramp up electricity production. This would mean keeping open coal plants and burning lots of natural gas. This is by some measures "cleaner" than gasoline-powered cars, but not overwhelmingly so. Teslas are unlikely to create such issues simply because there are not very many of them.
Part of being a visionary is being ahead of the times, and electric cars may be exactly that for most people.
@Doug K The loop of energy has to be closed much tighter before victories can be declared.
No genius. Just a confidence man, pretending he can beat established car companies at their own game. All major car companies are now selling electric cars at better prices than Tesla's.
No Theranos, but more like DeLorean. Seen any of those lately?
1
@Jonathan Katz,
Do you think people will continue to buy gasoline cars? When they drive the Tesla Model 3 once, they will want to trade in their gasoline cars.
12
I can’t agree more. I’ve been driving my model 3 and I NEVER go back to a gasoline car.
3
@Jonathan Katz
Sure, Musk is an unattractive, flawed personality. However, the "established" car companies are also severely flawed and only improved their products reluctantly when forced to by foreign competition or federal law. The most "established" one, GM, went bankrupt, in case you hadn't noticed. Their electric offerings seem to be designed to discourage people from going electric.
2
Musk needs a CEO / manager who can run a tight manufacturing line, and should focus on the design /vision side of the equation.
11
What many seem to be forgetting is that the Model 3 was the goal. The Roadster was the proof of concept. The Models S and X were the vehicles to convince major investors that Tesla was viable enough to invest the tons of cash necessary to produce the Model 3, which was intended to be the profitable mass market vehicle. That vision was affirmed when the order books were opened Tesla recorded some 400,000+ orders at $1,000 deposit apiece, far far more than expected. Tesla's key to making a profitable $35,000 battery electric vehicle was a fully automated production line churning out complex vehicles 24x7x52 at higher rates with higher quality assembly than Detroit and the the other mass manufacturers have been able to after a century of making vehicles. Old ways of thinking & doing vs Silicon Valley's future oriented ways of doing things. What was either ignored or not researched enough is that the Big 3 auto manufacturers tried fully automated assembly lines using robots back in the late 80's & early 90's with less than stellar results. They found, as Musk did some 30 years later, is the human being is an underrated resource. The problem Tesla has is the whole profitability of the Model 3 was based on a fully automated assembly line, which has proved not doable, again. Now Tesla is scrambling, hard. Ripping out robots, building a 2nd assembly line under a tent next to the Fremont factory, hiring hundreds, thousands of assembly line workers, with 12 hour shifts.
31
@HarryR I happen to be the happy owner of two Teslas, have a degree in Computer Science, and just celebrated my 30th year running a small electronics manufacturing company. What you, and most others don't realize is that the cost of computing, and environmental sensing has plummeted by orders of magnitude since the late 80's and early 90's. It is now trivial to put multiple 1080P cameras on or around a robot arm and do image recognition and control at very low cost. In fact Tesla's recent development of a neural-network accelerator chip, or a similar follow-on chip will take the production line to new levels of automation because the cost of training and programming robots will fall another order of magnitude (factor of 10) as these chips and ever better and cheaper sensors are put to use over the next few years. In conclusion, I have every reason to believe that Tesla will take automation to levels not even dreamed of 20 or 30 years ago.
12
The US is in competition with China who has a well though out plan to overtake it in key technology by 2025
The US needs entrepreneurs like Elon Musk to win.
That is MORE
Should he fail financially, it is in the national interest bail Tesla out as the company owes a key future technology.
It would be a better investment than the bail out of GM that subsequently morphed in a de facto Chinese company, selling more cars there than in the US, and that , to gain access to the Chinese market, moved its key future technology development to Shanghai in one of those infamous "joint ventures"
14
@Talesofgenji
Ha! Tell that to Trump. He believes the US should be competing on old businesses, not new. The battle for high tech predominance is a global battle, won or lost not by tariffs but by who has the best minds. Trump has made no secret of his disdain for engaging in global commerce. He would rather the US be the king of yesterday's technology.
2
What do you mean by "win"?
It seems to me that this recent push to discredit Elon Musk and Tesla (and other EVs) is reminiscent of the wholesale destruction of the beloved EV1 during the last Republican administration. These articles are politically motivated. They might be fun to read for people who hate innovation that moves us beyond our foreign oil dependency, but these expensive wars and loss of livable habitats will soon touch every one of us. Musk is a smart guy. Don’t worry so much about what he’s doing or how he handles his finances.
39
@Stephanie James
We are not "dependent" on foreign oil. North America is a net exporter, and even the U. S. is now exporting oil.
Canada and Mexico are not going to cut us off, as long as we pay the bills.
2
You lose the right to have people not care about the company’s finances when you issue common equity
1
Thank you for a nice article. It seems issuing equity seems to be the most viable option.
On that note, why wouldn’t Tesla consider raising price of its models - the cars are loved, so premium would be justified, no? Why isn’t price an option for a demand and supply imbalance at Tesla and when the demand is high?
The brand has developed such high equity from association with cutting edge, hip ideas such as BFRs, and in no less measure than Mr. Musk himself, that it must help with the operating losses, through price.
1
@Vsh Saxena In effect they have. While they have lot's of orders for the base Model 3 @ $35,000, teports are that those who loaded up on options are getting their cars first and that orders can be moved up the priority list by adding significant orders. It was just reveled that there are storage lots filled with loaded Model 3's, available to those who are willing to take what is on hand.
1
Whenever someone talks about Tesla "burning through cash" ignores what they are actually doing -- investing in their business to gain and extend competitive advantages that more short-sighted companies (which all other automakers are) can't do because they are exclusively focused on dividends, dividends, dividends. Short, short, short. Tesla things long, long, long.
20
Google the words “cash from operations” and then look up the figure for Tesla. This isn’t about investing in the future, they’re not making money from selling cars.
3
most people still don't get how much better an electric car is than a gas car..I've had electric for 5 years--no repairs, no maintenance, smooth power. I threw 2 solar panels out in the yard which generate half the charging power, so almost free transportation..Once main-street people figure this out tesla stock will become even more valuable, since tesla has the best electric cars.
37
@roger
You are confusing the product with the business. Electric cars are the future, they have to be since we will run out of oil in 50 years. But that is not the issue here - the issue is that Musk is not running a good business. It is not profitable and seems to be years from being so. And the problem is not for lack of customers, it is that Musk cannot deliver on his promises. Tesla may ultimately succeed but it may be without Musk at the helm.
19
@Scott Werden
With Tesla set to meet its production goals for the quarter. Tesla seems likely to show a small profit this quarter. It also looks like those profits will increase every quarter for the foreseeable future. The only reason they don't regularly show a profit is capital expenditures for expansion. The Model 3 was the goal of that expansion. I expect Tesla to take a breath for a quarter and use profits to fund further expansion avoiding financial markets from here on out. The article avoids mentioning that most of the debt is due in 2025. By that time Tesla will either be making more than enough to cover it, or been long dead. This debt is a non issue
3
@Will Meek, you do realize that capital expenditures do not directly affect profits, don't you? Capital expenditures are a balance sheet item while profits, or in this case losses, are on the income statement. Increasing cap ex does not reduce profits and decreasing cap ex will not increase profits. Tesla simply looses money selling cars.
I have been a fan of Tesla for a long time. It's a good product. Musk, however, is an incompetent manager. This was evident well before his recent seemingly willful self-destructive antics. My best guess is that the products will survive, but after the company is purchased at a huge discount by another automaker who will benefit from the technical head start in electrics and the improvement in the greenhouse emission score for their overall product offering, important in California and the EU. Such a new owner will be able to infuse the already good products with the auto-making expertise now lacking. Fit and finish and road noise can be improved by a company with long practice perfecting those issues. The interesting question is which automaker will take over.
32
@Flaminia...let's hope...the company may have too much debt to even be purshasable
1
@Flaminia
Disagree with everything. The question is.. Will Tesla bother buying any of the big automaker brands as they go bankrupt? Fit and finish and road noise are not the core product. Cells, batteries, and power electronics are. These are what Tesla is better at that anyone else. The other OEMs are at least a decade behind. Gasmobiles are an inferior product in every category except the cheapest and that is changing soon. Tesla leads the way. The others are left to follow or be left in the dustbin of history.
2
Innovation is a net social good. If it works, we all benefit. If it fails, it hurts only the entrepreneur and investors who believed in it
So let’s be happy we have a system that encourages innovation
And, as always, caveat emptor
9
@Paul
Hear, Hear!
1
We all need to hope Tesla survives. Musk drives innovation that we need in our battle with climate change. But this analysis sounds just like what was said about Amazon years ago - losing money again - just to sell books online - the market won't tolerate this. Well, enough said. Few people understood a) how awful the backplain software running AWS could be - 5 days of downtime for us; and b) how fully that would define the public cloud once the kinks were worked out. But if you got it, you leaned into Amazon 5 years ago. Shopping had nothing to do with it. I am long disruption and innovation, and sticking with Tesla, joint and all. The rest of you can sell me your shares and you can buy GM. Of course, a low interest loan from the government might be useful to accelerate innovation. We did after all fully bail out the auto industry while they were busy non-innovating and losing market share to foreign companies.
40
@Expat. We can hope it will survive but you posit some all or nothing narrative as if other car companies including GM couldn’t do what Tesla does. Sure Tesla has innovated but not enough to avoid massive losses despite subsidies. The thing preventing electric cars from being palatable and profitable is battery development. Tesla has dine well with batteries but they aren’t practical and priced well enough for most. While you lament government picking winners you forget the massive subisdies paid to largely wealthy buyers thereby indirectly subsidizing Tesla.. The government would’ve been better off subsidizing battery development research not a poorly run business and wealthy car buyers.
2
@I Love Dobby
So you were against the bailout then. Tesla is one of two US car companies to never go bankrupt you know. (Ford being the other). If electric cars were not palatable, why are there so many perorders for Tesla? That statement doesn't seem to fit the real world.
It is not that the other car companies couldn't do what Tesla does, it is that they wont. That is why Tesla is winning. Buy now while still under $500/share.
@I Love Dobby The government did subsidize battery research. That's why Tesla exists.
Sorry building an electric car with the range and speed of Tesla is not an easy task. Just ask VW, GM, Ford, Fiat Chrysler, BMW, Mercedes, Jaguar, ... They are just now entering the competition, Tesla's has been building long range electric cars since 2008 when the others said it couldn't be done.
"It’s already known that the investment will be required to be higher. One of the reasons are… competitors that have been making more progress or, in other words, developing excellent plug-ins."
That's from the new head of VW, which as it's told try to provide money for Tesla to go private, Elon turned them down. Now let's look at what Elon did:
- Elon not only created the world largest charging network but his network is the fasted so far.
- Elon along with Panasonic created the world largest battery factory, actually 3 of them so far.
- So far Tesla has put into production 4 long range electric cars, the original Tesla Roader, Model S, Model X, and now the Model 3.
- Tesla has at least 3 vehicles in the works, Model Y, Semi Truck that many said couldn't be done, and a pick-up truck.
Remember Tesla is an American company. No it's not a conventional auto company but To think that so many "American" investors are betting against this American company show something is wrong on Wall Street.
Oh and by the way Elon in his spare time has built a The Boring Company, and Space X what have you built!
47
@Steve The only reasons GM and others couldn't build the same car is that they need to make a profit and no-one was throwing that kind of money at them. If they were willing to sell $90,000 cars and lose money, they could have done it too.
45
@Larry Figdill
GM went bankrupt building the same cars and trucks, actually millions of them.
Vision and innovation are the things which take a company forward.
Tesla will easily survive. The same pundits have been sayings these things for way too long.
7
@Larry Figdill
When Fiat built the 500e in 2014 where losing $20k per car. In 2016 GM said it was willing to lose $9k per car. Really that's called in investment. The loss is due to the need for new tooling and battery factories all of which Tesla has and is "investing" in! Yes the investment is large but the reward for all of us is huge.
One must not forget that the problem is that the demand is too great.
33
Yeah well the demand for $1 real estate is out of this world!
But as it happens, nobody can deliver $1 real estate at a profit.
So maybe the problem isn't actually the unmet demand, but the debt owed and the fact that there's no profitability to pay it back.
Meanwhile the competition is stepping in to eat Tesla's lunch. Uh oh.
3
If you think producing cars at a massive loss and inefficiently creating a backlog with buyers juiced by subsidies I suggest you study what demand really means.
1
Elon Musk does not know how to set up an auto assembly line. He imagined it could mostly be done by automation but in fact lots of small things are outside of what automation can do. Years ago, a long defunct auto manufacturer made a fiber glass car but did not realize that to make car doors shut fully, auto makers relied on using a rubber mallet to get the door to full shut in the frame, but they could not do that with fiber glass - their last year was a nightmare. Musk is finding out that he cannot do what he wished. He will fail and another auto maker will mass produce an electric care at a middle market price.
7
@Terry McKenna
Are you seriously suggesting the company with the number 5 best selling passenger car in America and a nearly half million car backlog is going to fail?!?
2
@Terry McKenna. Are you referring to Bricklin?
Musk got a few more cards to play. Money is actually not that hard to come by, a Visionary is harder.
26
@Bobb The world is filled with visionaries who can’t leoduce something people both want and at a reasonable price. So far Musk has failed on that. I believe Tesla needs him as a visionary but a real CEO to run operations.
1
@Bobb
Last I checked he got 50 thousand cards to play this quarter.
1
All subsides currently going to the oil industry should be diverted to companies like Tesla, about $600b per annum, if wiki is correct.
104
@Paul That's a nice thought, but I don't think we've lost enough farmland to extreme weather events yet to be properly terrified. This sort of thing will probably have to wait for a decade or two.
4
@Paul
Most voters like gas prices kept low. The nytimes put subsidies at 4B in 2016. Far from 600B Wikipedia data. Not really enough to cover Tesla's debt.
Honestly Musk has 20B. He can bail out his own company. Why should we have to subsidize a car only the wealthy can afford.
2
@Paul...oil companis get tax breaks not actually subisdies...except for water for fraking......telsa got a CA bonus with the eletruc car subisdies and nv let them come in for low tax rates..but yes i would to see us do all we can to keep this invation going. https://www.fuelfreedom.org/oil-company-subsidies/
1
Mr. Musk's tweet, smoking a joint, stock price falls, maybe Mr. Musk is just positioning himself to buy back the stock on the cheap. He may have the last laugh on Mr. Cohan.
12
It's always about the numbers. The vision thing is great and all, but this isn't a public service, despite what the Kool-aid drinkers think. It has to make money to survive. It's doubtful that will be easy to do, if past is prologue.
9
There are true believers and realists. You can only pretend a chair is a parachute for so long. Then reality happens.
19
@1515732
Ya, GM probably still won't understand why they went bankrupt, again.
3
The Tesla could go the way of the Edsel if they aren't careful.
4
@JGar
Except that the Edsel was a lousy car. Read the reviews: Teslas are the best car you can buy and drivers love them.
It seems most people don't know this, but Tesla was started by Martin Eberhard and Marc Tarpenning.
51
@John
Sure , but Eberhard had no vision, he wanted to build the roadster and then sell out to Toyota. It was Musk and Straubel who had the big ideas.
@John
Thanks. I was completely unaware.
https://www.businessinsider.com/tesla-the-origin-story-2014-10
People have a difficult time imagining a company which has a a lot of debt but a future as well and far less imagination to see no future in companies that have no debt, or indeed profitable today. When creative destruction happens, cash does not matter. What matters is creativity. Who gets destroyed are todays fat cash cows with no imagination.
9
So - let's conduct a thought experiment - substitute Amazon for Tesla - can we say the exact same things - most sensible adults would say yes.
If you had invested $10,000 back in 2008 it would now be worth $200,000.
I am sure Mr. Cohen is a most excellent journalist - I am just not convinced that he understands how markets value companies.
Cautionary tales are for suckers and 'Financial' journalists - if you believe the future plans for Tesla are reasonable then you can partake in the ride - if not - maybe you can be a PUNDIT for a living.
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat." ~ Theodore Roosevelt
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@SteveRR
Would be a nice story if it made sense.
During the vast long stretch of money losing, Amazon reinvented and conquered the retail industry. Every money-losing day Amazon was building its infrastructure and laying waste to entire swathes of American retail. Actual merchandise was showing up on people's doorsteps every day and actual digital media was coming up on people's TVs, laptops and iPhones.
Yes, you needed a lot of courage and stamina to hold onto the stock but there was an actual company with actual executives that stuck around and an actual board that acted like one.
Not buying it (or the car or the stock).
18
@Harris are you not aware that they are actually building and selling cars? tesla is reinventing auto manufacturing, and sales(retail). no more haggling with rip-off artists at dealerships, no more $100 oil changes, or $600 brake jobs, $400 alternators, and on and on. buy a car at a set price and with minimal maintenance costs. this is the same market disruption that amazon created, that apple created. those companies were written off and have succeeded. go drive your F150 to the gas station and send your money to saudi princes so they can invest in tesla.
4
@Harris The difference is that Bezos is an extremely shrewd, disciplined, and patient man who shows no sign of mental illness. He had a vision and executed it brilliantly. He did not start multiple companies in different fields and divide his efforts.
Cue the fanboys.
Don’t take investment advice from anyone who buys an absurdly overpriced car from a company teetering on bankruptcy.
Enjoy your Delorians. I’ll enjoy my sound investments.
45
@tk
The funny part is that you don't realised you are describing Ford and GM. Don't worry, I am sure GM will get bailed out again.
4
I don’t understand the vitriol that is directed at anyone who dares to question Musk’s stewardship of Tesla. While Musk deserves kudos for building the first EVs that have caught the public’s attention, his management of Tesla’s finances have been horrendous and irresponsible. I do not know if it was hubris or greed that guided Musk and his somnolent board of directors, but the mess that is Tesla’s balance sheet was entirely self inflicted and avoidable.
The automobile industry is extremely capital intensive but Musk pretends that it’s not. Musk could have pursued the responsible path and funded Tesla’s growth with equity, but that would have diluted his ownership. So instead Tesla borrowed heavily, slow paid their vendors and collected deposits on vehicles and or features that don’t yet exist.
Now that Tesla is desperate, it’s unclear if regulators will allow them to access the capital markets.
For those people who equate criticism of Tesla’s finances with disregard for the environment, just remember Musk could have licensed Tesla’s technology to other automotive companies. (akin to “Intel Inside”) Had he done do, EVs would be that much closer to the mainstream.
67
@Kenneth de Got
He tried to license and was turned down. And you talk of finances as if 2008 didn't happen. As much as you wish it wasn't so, Tesla is winning this. Hope you are not too long on GM.
2
If you owe a million dollars, you've got a problem. If you owe $11 billion, your bond holders have a problem. Caving in a company, especially a manufacturer with a specialty product doesn't return 100 cents on the dollar. Look at GM and Chrysler, its not even close to even money. I think they'll say, are we better off in a year or two with a running company or collapsing it now? My guess would be to let it run. I've heard this debt story told about Amazon and Jeff Bezos seems to be doing pretty well.
13
Amazon never had a debt problem, their revenues grew so fast.
1
@Peter S. Except, if you are losing billions of dollars. Who is going to loan you the next. As long as you are somewhat profitable people will give you a bit of line but who in their right mind is going to loan you the next one or 10 Billion to burn?
Bezos makes his money off of selling computing time. Web services makes nearly all of Amazon's profits. He's the clever on that figured out that cloud services could be done cheaper on mass than by individual companies, maybe a third the cost. Even at 1/3 off they still make a killing. This won't go on forever but he's one of the first and did it well and is reaping the benefits but everyone is rushing to take a piece - it's going to be a hard slog. Amazon isn't going to be all milk and cookies in 5 years, there is no lock-in. Maybe they will pivot to something just as good in 5 years.
@tomj Amazon had no profit for 20 years, they just started making money recently. They did have a lot of debt, just not as high a ratio to their revenues as Tesla.
A few words in defense of Tesla.
These days, anyone with a cheap laptop can declare himself an "internet entrepreneur". Elon Musk started a new company to mass produce automobiles. If you look up "impossible" in the dictionary you might find "starting a new company to mass produce automobiles".
Elon may eventually fail, but he has already got a lot farther than DeLorean, Bricklin, and Tucker to name a few infamous corporate misadventures.
67
@hb freddie. The fairest comparison is probably the postwar upstart Kaiser-Frazer. In 10 years time (1946 - 1955) they produced approximately 760,000 cars.
3
@hb freddie: Elon Musk did not start Tesla. It was started by Martin Eberhard and Marc Tarpenning. Musk's involvement (i.e., money) started a year later. Some will argue that he kept it going, or that he saved it, but he did not start it.
9
When all of the other car companies have a giga factory and a supercharger network they might be able to compete. The decision to borrow all that money and create a virtual monopoly in infrastructure and batteries is a gamble that is more than likely to continue attracting investors. Because no other car company comes close and will not come close for years.
96
@JF
Lithium battery technology is generic. Tesla has no long term edge there and never will.
3
@phil
You do realize that people have been saying that for over a decade now right? They are still wrong.
I'm wondering if Tesla actually has any compelling intellectual property and/or value proposition to justify its valuation?
I have a feeling that if they don't then commoditization is just around the corner...
(As far as I can tell they have a car chassis, an electric motor, a battery pack, a dash-mounted tablet, a self-driving technology, a charger network, zero advertising, zero dealers, and a huge factory. None of these seem very challenging to copy...)
2
It's a shame, as the product line and pipeline is finally looking really good. I took delivery of the Model 3 Performance a couple of weeks back, and the entire experience continues to be mind-blowing: the amazing driving experience, performance that is off the charts, revolutionary autonomous features, unique entry and exit procedures, and unusually speedy and efficient delivery process. News today that the car received 5-star ratings in NHTSA's crash testing in every category.
Ten-out-of-ten net promoter score - the product development and manufacturing folks have done an outstanding job. I still wouldn't buy the stock though....
74
To the commenters defending Musk based on how great his cars are: No one is saying there is a problem with the cars. The problem is he can't make them quickly enough or at a profit and, given Tesla's financing, he's running out of time to fix it.
111
@Pete
You do realize two of his three cars have >20% margin and it took them a year to get there. By the same pattern, the model 3 should be break even this quarter and 10% next, and 20% the one after.
3
@Pete
Thank you. You hit the nail on the head. People often confuse a great product with a great stock.
Well, if Tesla was at tipping point before, it should be in free-fall after this. Markets are nothing but proving grounds for trust, confidence, belief--and Mr. Musk's truly bizarre behavior of recent months, erratic financial claims and dalliances with potential backers, will probably trigger the company's change of hands at fire-sale price.
Never depend on the combination of a bit of talent, lots of chutzpah, bluster, self-importance, and impetuousness. That reminds me of a certain other man in the public eye these days--and I predict a similar implosion on his part, too, along with those who have followed him down a path that leads nowhere.
16
Yes, a tipping point, but wrong way. Indications are Tesla beat quarterly guidance on production. Profits likely.
1
Recently received delivery of my Model 3 after a 2.5 year wait.
It was worth the wait, and then some.
Took it on an 800 mile round trip, the supercharger network guided us flawlessly throughout the trip, with nary a second of range anxiety.
All with $0.0 spent on gas.
Dont know about you ,
But Sounds like a game changer to me.
153
@MC Just curious, what exactly is a game changer here? Going on an 800 mile round trip? Or not having to pay for gas? The reality is there are no technological breakthroughs in Tesla - it is just a car with a battery driven by an electric motor. Everyone can built one, even Kalashnikov apparently. It is one thing to charge 50% markup for a mobile phone like Apple does. But if Mr. Musk thinks that the same business model will fly for cars, he will be sourly disappointed. And so will be his fans.
22
Sounds great but unless the company can generate profits and positive cash flow, who cares. I am speaking as an investor not a Tesla driver.
Agree after taking delivery of a Model 3 last Friday. Sweetest ride I've ever had and guess what? No Trump tariffs...At least Elon Musk is making America great.
34
The Tesla Model 3 is a great car. Mr. Cohan might want to test drive one. Bean counting is one thing, vision is another.
80
@Kay Tee
The fanboys and girls are right to cheer Mr. Musk’s vision. He is a very bright guy and deserves credit for it. But the article focused on the finances of the company not the quality or desirability of the product. If Tesla can’t make money, then the quality of the cars becomes moot. And remember Tesla will at some point exhaust its subsidy of $7,500 per vehicle - it’s limited to 200,000 vehicles per manufacturer. May not matter much on the high end vehicles, but on the Model 3 it could be a killer.
7
@Kay Tee
Vision doesn't amount to a hill of beans of you've got no money. I've never understood Tesla fan bois. They over look the fact that Tesla is in a world of financial hurt, they have turned a profit 2-3 times in the whole time they've been public. Elon uses Tesla to buy a debt laden, no customer having company Solar City, that a family member owned.
No company other than Tesla would have touched Solar City with a ten foot pole. The numbers are the numbers, and Tesla has squandered their opportunity to keep their competitive edge. Branding doesn't amount to a hill of beans, nobody cares, about branding. The average american can't afford 70,000 plus, people want affordable EVs. Tesla can not produce the Model 3 an make a profit, it cannot be done. Add, crazy Elon to the mix, and you've got a recipe for disaster.
9
Brand counts for much more than you think. I don't dispute that Tesla's finances look to be a disaster, Elon seems a mess and there's a load of risk in the stock. But pay close enough attention and you will see something very big is happening.
Tesla has become THE aspirational car brand for the under 40 demographic. It's what BMW or Mercedes used to be. My Model 3 attracts insane attention. Everyday, strangers want to talk about it, take pictures of it and sit in it. It is wild. And all this awareness and interest in a company that has never purchased any paid advertising.
Brand is the measure of that interest and awareness. It is very valuable and it does convert to revenue when given enough time. The company just has to hang in there. They need more discipline. They need investors to be patient.
6
It is the continuation of "comments" such as Michael Cohen's and other "pundits" that cause some of the upheaval of Mr. Musk business. Elon Musk is the lone person who has revolutionized the electric car industry without whom it will still be a thing in the past. He has been the lone person who has bought exploration of space to a new level.
There will always be stumbles in a new industry/invention. People who put their faith in him are the ones who have helped making electric cars a reality for common people and space exploration a foreseeable future for human kind.
If everyone was like you, Mr. Cohen, there probably would have no airplanes, spaceships, digital technology because you would have forecasted the doom of all of these inventions at their start.
We as the human species, one day would owe a huge thank you to Mr. Musk's contribution to our future, at the very least the awareness that electric car is the way to go to save the environment and space travel is not a impossibility.
89
@ami
BMW, Mercedes, et al will soon blow by Tesla like it is standing still. In addition to its other problems it does not have a robust dealer network and to date has succeeded on its novelty. I applaud Mr. Musk’s vision, but his car company is a mess from a financial point of view.
27
@ami
NASA, a US Government agency, and its network of contractors has been exploring space for half a century. The contribution of Mr. Musk to space exploration is negligible.
8
@TW Smith and how will you drive your electric BMW or mercedes more than 3 hours without a multiple hour charge along your trip? it isn't just about building a car, you have to make it possible for people to "fuel up" quickly. tesla knows that, and has spent money to develop infrastructure for the future of electric cars. drive from LA to san francisco, houston to dallas, chicago to cleveland. not a problem with a tesla. none of the other manufactures can do more than build a daily local driver, that is tethered to an overnight charge, or saddle it with a gas motor that continues the cycle of petrol based pollution and maintenance. hardly innovative. and they will likely be trying to buy their batteries from tesla.
1