The brief uptick in share price Tesla enjoyed after beating production estimates this week was swiftly erased by a newly critical Goldman Sachs Group.
The investment bank downgraded the company on Thursday, sending its stock back down the hillside, Bloomberg reports. It’s bad news for CEO Elon Musk’s fundraising plans.
Goldman was spooked by Tesla’s $2.6 billion acquisition of solar energy company SolarCity. The bank, which managed the automaker’s $1.4 billion May stock offering, scrapped Tesla’s “buy” rating, replacing it with “neutral” after assessing the extra risk taken on by the automaker. It also cut Tesla’s price target from $240 per share to $185.
Naturally, Tesla’s stock bounced off the ceiling, reaching a five-week low. The stock started the week at $214.40, but ended it at $196.61. Another bank, Morgan Stanley, downgraded the company back in June.
Buying SolarCity is Musk’s way of realizing his goal of a company that can sell you the complete green lifestyle, but the acquisition sparked a harsh investor backlash. Too much risk at the wrong time being the chief complaint.
Musk wants extra money in the bank by the end of the year to help complete his battery-producing Gigafactory and prepare for Model 3 production. SolarCity’s need for cash to cover debt payments could weaken Tesla’s financial footing. Meanwhile, the Goldman downgrade threatens the automaker’s ability to raise more cash through future stock offerings.
Musk still needs shareholder approval to complete the SolarCity deal.
[Image: Tesla Motors]
Big news here in the SF Bay Area is that Tesla wants to massively expand its Fremont plant:
http://www.mercurynews.com/2016/10/07/tesla-eyes-major-expansion-in-fremont-next-to-existing-auto-factory/
Hooray! More traffic!
The traffic from the plant should only last another 5 years.
Pragmatic…your prediction. Will Tesla produce more cars than Elon will produce tweets and press releases?
You mean people getting jobs means more traffic? In this case I would suggest you to retire, stay at home and enjoy unemployment insurance == less traffic. In general I do not understand people piling on Tesla’s problems and cheering as if they get satisfaction if game changing progressive startup fails. I got news for you – you cannot stop progress and Tesla will succeed. You probably never worked at startup. By the same token you would root for Apple, MS, Google to fail – they cannot challenge IBM (Mercedes, BMW, Chevy) – IBM will come up with superior PC and OS and Apple and MS will collapse. Yeah, that exactly what happened.
Most challengers to IBM did collapse. Selection bias is not particularly enlightening.
I’m certainly rooting for Tesla. But it is a high risk venture.
In addition, people are supposed to get ticked off when regular Joe Taxpayer, have to sit in gridlock traffic to low paying jobs, just to pay for “incentives” for rich guys to buy expensive toys they can then use to access private “Politburo member only” lanes. If we still lived in a half decent society, that in and of itself would be enough to have turned both DC and Sacramento into 1990s Mogadishu already.
But it is hardly Tesla’s fault they are stuck, with the rest of us, in a progressive dystopia. They’re just making the best of the situation. If they can end up with a product that is genuinely useful to lots of people, rather than just a status symbol for Federal Reserve welfare queens, that would be awesome.
I think enough Tesla Model S have been sold that it can be considered genuinely useful. i mean, it’s an excellent car by all accounts, I see a lot of them on the road, and it’s cheap to operate compared to comparable vehicles.
Cheap to operate is not really high on the list of wants for the typical buyer of $70-100K cars. Especially given that THE #1 with a bullet expense of such cars is depreciation. The opex pales in comparison to the capex.
Really, cheap to operate doesn’t even make sense in regards to the theoretical $35K Model 3, when a 40mpg Civic costs $16-17K. $15K buys a heck of a lot of gas. Get down to a $99/mo lease on an eSmart and you have a ballgame. Or some of the blowout deals Nissan has offered on the Leaf.
“You mean people getting jobs means more traffic? In this case I would suggest you to retire, stay at home and enjoy unemployment insurance == less traffic. In general I do not understand people piling on Tesla’s problems and cheering as if they get satisfaction if game changing progressive startup fails. I got news for you – you cannot stop progress and Tesla will succeed. You probably never worked at startup. By the same token you would root for Apple, MS, Google to fail – they cannot challenge IBM (Mercedes, BMW, Chevy) – IBM will come up with superior PC and OS and Apple and MS will collapse. Yeah, that exactly what happened.”
Wow. Must be nice to be only capable, of linear, one-dimensional thought. To not be bothered with the mental stress and ambivalence caused when one is capable of seeing more than one aspect of a circumstance. To be able to both celebrate the potential creation of thousands of (presumably) good-paying, blue collar jobs yet also be dismayed by the thought that one’s current 75-minute round trip commute from San Jose to Pleasanton might become a 150-minute commute due to the addition of thousands of Tesla employees and family members on already overtaxed Hwys 880 and 680. To be both pro-immigration and upset by the immigrants stuffing into nearby apartments defecating, urinating, and throwing trash in your yard, and taking all available parking to the point they drive over your lawn clippings pile and prevent the haulers from picking up your garbage and recycling. Te bemoan the ubiquitous crowds and at the same time celebrate the fact my tiny little crackerbox house has quadrupled in value since I bought it 20 years ago. It does indeed create some mental stress, but I pride myself in being able to handle the consequences in not seeing the world in only black and white. Must be nice to have a one-dimensional mind that can make the linear progression from ‘resident is concerned with increasing traffic’ to ‘resident hates Tesla and all other startups.’
True, I’ve worked for ‘near startups’ but not for any startups like Pets.com, who brought such value to people they folded after a couple years after burning through millions in investor cash. I started my career at Hewlett-Packard in the mid-80s and was damn glad to get a job at an established company as it was in the middle of one of Silicon Valley’s frequent recessions (lived through any of those, yet? There hasn’t been one since the mid-90s). I’m also proud of the fact I’ve been able to remain employed and productive at 63 in an industry that is notoriously ageist–see: recent lawsuit against none other than your darling, Tesla, for age discrimination–though the web development work I’m doing now is nowhere near as challenging and interesting as the real-time and embedded work I did earlier in my career. I will concede you have a great imagination, however, for stretching my concern for even more traffic on already greatly overtaxed roadways into aversion to technological progress. That took some real creative thinking.
Let’s set the record straight: I’m not rooting for or against Tesla, though I find Musk’s endeavors in space transport much more interesting and with more potential than Tesla’s.
Well, lets start with age. I am not much younger than you and was able to find job every time I was laid off. And in Valley reorgs and layoffs happen every half a year. Second I am an immigrant and my home’s price doubled while I owned it. I do not see Pleasanton to be overrun by immigrants and Police is everywhere and it is actually nice place to live in. More nice restaurants open on Main street – just go check out Beer Baron. I would be concerned more with people born in US and squeezed out from Oakland into East Bay like into Castro Valley which until recently had a good and well respected high school. And note that it is not immigrants that created problems. Then I work exactly on drivers and embedded system. Traffic was worse during dotcom boom than now and back then it was not a working class blue collar people that made it worse – it were dotcomers.
Since you apparently didn’t read my comment carefully; I will clarify for you:
“… current 75-minute round trip commute from San Jose to Pleasanton might become a 150-minute commute.”
That means I live in San Jose, not Pleasanton. I agree Pleasanton is a lovely town; unfortunately, even my housing appreciation would not allow even a ‘sideways’ move to Pleasanton (the new condo complex on the east side of 680 near Bernal start at $1.6M, for example, and I prefer single family houses). Many parts of San Jose, including the northwest side I live in have been overrun by immigrants. I am quite sympathetic to immigrants, and I would do the same thing to improve the lot of my family in their circumstances (not including having many children I can’t afford). I am not sympathetic to them shoveling garbage from their cars and trucks onto my front lawn. I am not sympathetic to them moving my trash bins so they can park their cars and SUVs in a neighborhood they don’t live in. I am not sympathetic to them sleeping in their vehicles, urinating and defecating in my yard and dumping their garbage in my recycling bin (too many infractions like this and the haulers won’t pick up your garbage any more). I am not sympathetic to gangbangers gut-shooting a neighbor’s teenage son for the offense of wearing the wrong colored ball cap.
Your claim that traffic was worse in the dotcom era is subjective and unsubstantiated; if you have data let’s see it. Garbage on the roads is the worst I’ve seen in my 33 years in the BA; yes, that’s subjective but most agree with me (see: http://www.mercurynews.com/tag/mr-roadshow/).
I am glad you have found work every time you have been laid off; so have I. Embedded and driver work is more interesting, I said so so we have no dispute there. I’ve taken the opportunities presented and followed the web development path. You know as well as I do at some point our ages will be a factor. I don’t know if the accusations of ageism against Tesla are legitimate, and neither of us will likely know as the suit will probably be settled out of court.
Back to the point: you made the unfounded assumption that because I’m not especially fond of more and more traffic on BA roads that I’m ‘anti-startup’ and, especially, ‘anti-Tesla.’ I’ve made it clear, I hope, that I am neither, and it’s pretty weak of you to jump to such conclusions based on, well, based on nothing but your own assumptions.
I’m with carguy67 on this one. I’ve been working in the Bay Area since 1991. There was a slight dip in traffic in 2000-2001, but, for me, that has been about it. I’ve been commuting to the same office for 5 years; when I started this commute morning traffic was still bad at 9:15 AM. Now I start my commute at 9:45 and traffic it still much worse than 5 years ago. With a 9:45 commute start my trip computer generally reports an average commute speed of 10 MPH; a trip to the office at midnight gives an average speed for 35.
It seems logical that Tesla would move manufacturing out of the Bay Area to anywhere else in the country. That they don’t move to a place starving for jobs (Michigan, Ohio, Wisconsin) and would rather employ blue-collar workers here is perplexing. Perhaps that says something about how badly the labor markets are messed up in those states.
This post is a knot of different colored strands of error. I’ll try to untangle it as efficiently as I can.
Most startups fail. Nearly all auto startups fail. If there’s ever a sizable market for electric cars, the established manufacturers will make the cars. Tesla has no moat. Tesla was doomed from the start.
I don’t agree that Tesla was doomed from the start. they *will be* doomed if they don’t start acting more like a car company, and less like a software/tech company. they need to quit with flashy “gee-whiz” nonsense like falcon doors which cost a fortune to design and build, and don’t work right. They need to realize that production tooling like stamping dies and assembly line fixtures can’t be changed every day.
Design flaws aren’t going to go away just because St. Elon resides in a sleeping back at the end of the production line.
No! I BELIEVE in Mole Car.
If the headlights were a bit smaller, I’d be right there with you.
As it is, it looks like the clay model, waiting for a grille.
Harlan Ellison
Don’t get the reference. I’m not an H.E. fan.
“I Have No Mouth and I Must Scream”
Ahh- he will probably re-use the title if HRC is elected…
I see that he wrote a lot of teleplays back in the 60’s (besides “City On the Edge of Forever”), including “The Soldier” episode of The Outer Limits. A talented, yet tormented person.
He seems to feel that he’s surrounded by incompetence (but that’s the ocean that we swim in…)
He was and is a flake. But he came up with at least one cool title.
Edit: I see his buddy Bill Rotsler coined the phrase but at least Ellison had the sense to use it in a wider venue.
I’m just one guy with the keys to a Camaro instead of a Bentley, but my read of Teslas latest 10Q shows a () around the number in the “net profit and loss” column.
Their net loss per share of common stock and overall losses have gone up since 2015, and their debts have also increased as well.
Frankly Goldman Sachs is being generous; if I ran their shop “Model S” would refer to the stock rating, not just their cars. You don’t add unneeded debt when the firm can’t even post a profit.
OK, So I have a slightly different perspective. I am a corporate finance guy and have worked at a bunch of high growth companies in Silicon Valley.
OK, you want to sell more cars? Yeah, you’ll need production tooling. Office space buildout. Warehouse space. Even stuff like software licenses for the HR and Accounting sytems. 3000 more workers? At 5k per employee to recruit, $150 million just for hiring. Then more money to train them. Assembly line workers will cost less, but high skill workers, of course, are going to cost much, much more
To put it bluntly, growth uses cash. Lots of cash. The faster you grow, the more money you lose. Grow at 15% a year, and it’s manageable. Above 30%, things get crazy and you have to be really, really good to manage it. At 40% growth, hiring becomes the primary task for most managers. At 60% a year growth (I briefly consulted for one company in this range) it is absolute total chaos and you generally get bottlenecked by the recruiting and training process.
Tesla is probably going to grow close to 60% in 2016.
(Check out a book “The Everything Store” for a view inside Amazon during the hypergrowth years).
All of this before the first car rolls off the line.
I’m not a car manufacturing expert and have no insight into their internal numbers but to imply that just because Tesla’s losses are growing they are failing is not strictly accurate.
And I should add that my job function is to do product cost modeling for a reasonably sized technology company. This stuff is hard and trust me, you don’t have enough visibility from the outside to know what the real situation is.
The problem is long-term profit.
Short term rises in expenses is manageable -IF the business in question has a good possibility of long term expansion.Musk’s spaceX enterprise is a good example ; the sky’s the limit in terms of private space revenue if he can keep the launch costs down and still make a profit.
Cars are a different story. Being a niche luxury carmaker is playing in a saturated market- and eventually its going to bite Tesla in the rear. True we don’t have access to Tesla’s internal numbers- but based on what’s publicly available and how their competition IS catching up, their current revenue advantage will wind down just when Tesla needs the sales to pay down their expansion costs.
Once BMW, Toyota, and other established players start making products to compete with Tesla its curtains. Making things worse for them, those carmakers already have production infrastructure available to make electric high end vehicles. Tesla must fabricate theirs from the ground up.
I’m not going to say Tesla is doomed to go belly up at this point, but I wouldn’t reccomend their shares until those debts decrease and they start making a profit. Once BMW makes a Tesla fighter at a fraction of the cost w/ superior marketing and sales support , game over.
As a “corporate finance” guy, hopefully you check your math better at work.
3000 workers @ $5000 each to acquire is NOT $150 million. Not even close. :-)
Rix, to whom you are preaching? These guys are (armchair) automotive experts and know better than you that there cannot be a growth for Tesla and it will soon collapse to the satisfaction of car enthusiasts.
If you are a finance guy in the tech business, then you should be able to figure out that Tesla isn’t a tech company.
Tesla is a manufacturing company in a mature industry. Even in the best case scenario, it will never be a high margin company because automaking isn’t a high margin business. Having a facility located near San Jose doesn’t change that.
” Having a facility located near San Jose doesn’t change that.”
:)
Don’t be so sure. They just may be inside the unusually potent reality distortion field, Sand Hill Road is operating on behalf of the Fed over there….
With a little due diligence I believe Tesla earnings could make it to -$2 per share in by the end of the year. A little more hard work should get them to -$3 per share in 2017.
Investors should be upset, Elon Musk bought out his bankrupt company on the backs of Tesla shareholders.
And the whole home panels solar + electric car synergy is a joke. You take away government incentives and the whole thing falls apart very quickly. I would argue even with all of this corporate welfare you can’t really make a case for it.
Whatever you think of the politics of EVs or Elon Musk’s vision, I just can’t see anyone making a financial case for investing in the stock of these boondoggles. Elon Musk looks at “his” company as his personal piggy bank to feed his ego.
This is dead on. Hanging the anchor of Solar City around the neck of Tesla right before requiring additional capital to expand production for the model they’re betting their future on is incomprehensibly stupid and speaks of Musk’s ego ruling uber alles at the company.
Yeah, go ahead and lecture Elon Musk, he desperately needs your advice how to conduct business.
Ooh, appeal to authority. Great argumentation!
“Yeah, go ahead and lecture Elon Musk, he desperately needs your advice how to conduct business.”
How much have you invested in Tesla? It better be at least five figures.
Could ILO be BTSR in his his Halloween costume?
In any conventional world, you would undoubtedly be right. And as most worlds can’t stay unconventional forever (or they would be conventional, duh…), you’re probably right this time too.
But Tesla’s valuation, per any conventional metric, is so out of whack that it only really makes sense if you both believe in Musk’s vision, and believe Musk knows how to execute on it. Buying into Tesla, is pretty much a 100 to 1 odds against you bet, that you’ll eventually be rewarded 101 or more. It makes no sense, unless Musk either gets lucky enough to win the lottery, or is clever enough to have rigged the drawing without anyone else being able to figure out how.
Hence, if you’re in, you may as well be all in. You’re “strategy” is flopping three cards to a royal flush already.
“You take away government incentives and the whole thing falls apart very quickly.”
As with GM’s Oshawa plant? Thought so.
a plant is not a company.
…And a one time subsidy to upgrade a plant is not a continuing subsidy to its customers to make the price of its products competitive.
Over at the Daily Kanban and especially Forbes a couple of TTAC familiar writers are beating them up over various issues. They are even taking shots at electric cars in general.
Bertel can be a pretty bias guy. For example, he wrote a article in the past week talking up the competition coming to Tesla. Lots on VW, BMW, Renault, Mercedes. Nothing on Opel’s version of the Bolt even though it is coming first. Seems that as a proud German he can not accept an American firm owning a German car maker.
What he did write that I believe is a threat to all automakers is the possibility of Government regulations forcing EV production from manufacturers. Profit margins may be wiped out.
I would correct it “as a proud German he can not accept a STUPID American firm owning a German car maker.” Because everyone around world knows that Americans are stupid, lazy and fat. Even worse – cannot figure out soccer.
“Americans are stupid, lazy and fat.”
Well, every developed nation is breeding that way now. But we inwented it!
I also can add: imperialists, invaders, aggressors, illiterate, terrorists, racists, slave owners, fascists (half of country votes for Trump), communists (another half for Hillary/Sanders). I do not know how the world community allows such horrible country to exist. UN has to issue edict to disband USA. Oh yes, they also make worst cars in the world equal only to Russian made junk – just ask our Australian friends (who also claim that in case of war the will take sides with China rahter than USA, well because they need China more.
So go homesky.
I think the fact that he’s German is the only thing making him remember that Opel exists at all. Opel is the blandest brand I Europe and nobody that can afford anything better drives an Opel. That they manage to sell that garbage as a “premium” product in the US truly boggles the mind.
In a serious note, the Bolt/Ampera was a major dud in Europe, they couldn’t even manage to get the “green” fleet deals with local and national government agencies and was probably outsold by the Renault zero range (that was on sale long before the ampera). THis could all be down to the fact that the ampera was an Opel and nobody wants an Opel, not even the government.
Tesla should have gone bankrupt years ago for its embarrassing failure to launch a competitive EV with the price, range and charge time at least as good as that of a petrol-powered car. Its current products are pathetic jokes, and the future model 3 is poised to continue that trend.
The Model S already is the single best-selling luxury car model in America, and it’s stupid to expect that a car with a thousand pounds of batteries will retail for the same price as a car with an empty gas tank.
No, it isn’t, not by a long shot. The Model S sells slightly better than other individual cars that start at $100K+, but that is NOT the only market it is competing in. The car starts at around $70K, and it sure as heck does NOT outsell cars in that lower price range.
Ultimately, I think Model S sales are poised to plateau – most everyone who actually wants one will have one, and there isn’t much reason to buy another one. The tax credits will be gone, in some states the HOV lane stickers will be gone, and the demand will tail off significantly.
MAYBE they can turn a profit with the Model 3, but I doubt it. For sure they are not going to even remotely hit the ambitious goals they have said they will hit, and the car is going to cost a LOT more on average than most of those who put down deposits think it will.
The thousand pounds of batteries is the problem, not the solution. Gigafactory or no.
The Q3 financials will be very, very interesting. The big question is, how much discounting went on to make the Q3 number? We suspect some games are being played because there are people online in forums talking openly about the deal they got — 10k off for a car with 50 miles on it, etc.
At root is the fundamental question – can any company make electric cars for a profit at scale over the long run? I suspect the answer to that question is that eventually, it can be done. When is anyone’s guess. Tesla’s CEO is a total blowhard — he stokes demand by fueling the idea that there is a massive conspiracy against electric cars. Behind the curtains Musk is driving engineers like slaves to try and figure out how to close the distance between the lies he spouts and the performance/cost realities of electric cars today.
For anyone who believes there is a large conspiracy against electric cars, why is it that the government issues billions in loans to battery startups and subsidies the purchase of electric vehicles? If “big oil” and “big auto” are such a powerful cartel that can influence the government at will, why do they allow that to continue? None of it makes any sense. BEV’s biggest problems are the state of the technology, not the CEO/BoD of Exxon. Bring a BEV to market that can be charged in 10 minutes and doesn’t lose charge in freezing temperatures and sales will soar.
“We suspect some games are being played because there are people online in forums talking openly about the deal they got — 10k off for a car with 50 miles on it, etc.””
And that’s a potentially huge problem right there, once you open that Pandora’s box it’s hard to close it again. I’m not in the market for an F150 but if I was I’d be hard-pressed to buy one without the five figures on the hood that are bandied about everywhere you read…Nobody wants to be the chump that paid sticker when apparently others didn’t have to. Let’s see how Q4 turns out, or perhaps more tellingly, future orders yet to be placed for 2017Q1 or Q2,as 2016Q4 is probably mostly locked in by now.
@tnk479:Bring a BEV to market that can be charged in 10 minutes and doesn’t lose charge in freezing temperatures and sales will soar.
The upcoming 800v charging standard will charge a 300+ mile large EV (Porsche Mission E) to 80% in 15 minutes. A smaller EV will probably easily charge in 10 minutes or less.
In the real world, on a longer trip with a 100 mile range Leaf, I’ll charge just enough to make it to my destination with a bit of padding. For a 100+ mile trip, I’ll stop for a 10 to 15 minute charge to get where I’m going with extra a bit of insurance. Once I’m at my destination, I don’t care how long it’s going to take usually. For example, in the past, I’ve taken it maybe 88 miles non-stop, charged to add in maybe 40 miles of range which doesn’t take long, then continue for the remaining 20 or so miles. For mid-trip padding, I usually like to add about double the distance I need to cover.
As far as operating in freezing temps, I haven’t had much of an issue. I’ve made 50 mile non-stop trips at -4 degree temps at highway speeds. Two co-workers had ICE cars that couldn’t make the trip that day. A 200 mile to 300 mile range EV wouldn’t have a problem. A 200 mile EV that will only go 120 miles on a single charge when it’s sub-zero isn’t a big deal when you’re only going 50 miles. If you’re going 200 miles on a day like that, sure, you’ll need a mid-trip charge to pad the range a bit.
One trick I perform to minimize battery range loss in the cold is to set the cars climate control pre-heat thermostat to 90 degrees and bake the car in the garage while it’s plugged in. I also open up the battery access door in the interior floor to help the process. It gets the interior and the battery itself up to summer temps and delays the effects of the cold weather.
A car that takes forever to charge is not a “luxury” car – on the contrary, it is a car that’s perfect for people for whom free time is not a luxury.
How many pounds of batteries are in the car is irrelevant – if it needs so many batteries to reach range parity with petrol-powered cars that it ends up being too expensive (as seems to be the case), then that is a severe flaw in the design, which is actually a good reason to reduce the price of the car (at which point it may of course be unprofitable for Tesla, but that’s what you get for trying to sell cr*p).
A G-wagen is hardly a “luxury car” in the traditional sense, either.
Nowadays, “luxury” means expensive. And/or adorned by a brand name deemed a “luxury” brand. Nothing more, nothing less. Living in a progressive dystopia and all, those who may still entertain the notion they are discriminating enough to discern more subtle cues of luxury, will undoubtedly be sued for, eh, discriminating against something.
I don’t know why but some forum posts don’t have reply buttons.
Anyway, @mcs, great work around but it kind of goes right to the heart of the problem. There are hundreds of millions of people that lack a personal garage that they use as a Tesla oven before winter trips.
Also, which ICE cars were not able to make a trip in -4 temps??
I worry about the amount of federal dollars involved in this venture. One change in congress and it all goes down. It seems to me a bit of a pyramid scheme with no out at all. As a retired federal economist who handled some of the Enron problems I find this company to thin to invest in. Too many irons in the fire which are not clearly related.
What Federal dollars, exactly? Do you mean the loan that was paid back years ago, ahead of schedule, with interest?
He means the federal credit to lower the purchase price. Congress can put an end to that, just as states can eliminate the free ride in HOV lanes for lone drivers.
Buying SolarCity is Musk’s way of realizing his goal of a company that can sell you the complete green lifestyle
So says Elon. Others believe it is to shore up Solar city to prevent the company going down in flames. That would reduce the public(and purchasers of a new issue)perception of the infallibility of a Elon Musk company. When you have to be a serial raiser of funds, failure is not an option.
In other news, stocks fluctuate. Film at 11.
TSLA is the only stock written about on this site, yet it doesn’t even appear next to the other car mfr’s tickers on the TTAC home page.
because it’s the only one benefiting from the typical massive Silicon Valley over-valuation. The others don’t get talked about because there’s nothing to talk about. F has been languishing at $12-13 for a long time despite profitable quarter after profitable quarter.
As someone mentioned earlier in the thread: if you have any experience in high growth technology companies, you know that if the business model is right, cash burn is to be expected. Investors aren’t idiots.
That being said – Musk is trying to apply the Silicon Valley model of fundraising and business management in a completely different industry. It just so happens to be the most capital intensive and heavily regulated in the world, and one where brand image matters quite a bit.
Can he make it? So long as he’s given enough time and there aren’t any economic catastrophes that turn off the funding spigot, sure. He could.
However, I’m in the group that believes that there are significant market trends working against Tesla, compounded by the fact that the auto industry doesn’t work based on technological breakthroughs, but incremental improvements. Because of the capital intensity and complexity of what they do the automakers know that their job is not to release a ‘moon shot’ every year, but to be incrementally better than the competition.
Doesn’t mean Musk can’t be the great industry disruptor, but it also doesn’t necessarily guarantee him a win like it would in Silicon Valley.
The big things working against Tesla, especially if petroleum prices remain depressed:
1. The big winners in the next 3-7 years will be the automakers who have hybrid-electric powertrains that deliver solid improvements in mileage. Related to what I said before: you don’t need to deliver 200 miles on a charge, you need to deliver 40-50mpg to catch peoples’ attention.
2. Branding and distribution: Again, once BMW, Audi, Porsche and Mercedes start dropping their serious hybrid and full EV models in the next 24-36 months Tesla will be faced with its first real competition exactly where it doesn’t want it: at the high end of the market.
3. Real world ‘normal adopters’: Early adopters, especially at the high end, tend to overlook minor issues and always downplay problems. Their seemingly odd choice is always “amazing”, “flawless” and problems are “no big deal”. Bring in the normal buyers and that attitude changes entirely. Just ask any service manager who has had to deal with ‘entry level’ prestige buyers: they’re the biggest complainers.
BMW, Audi, Porsche and Mercedes will have good entries into the EV market in a few years, but their prices won’t be nearly as low as Tesla’s.
The Model 3 is a mid-range car, and reservations for it are 5x what Tesla has shipped to date. Soon, Tesla won’t be a high-end EV maker, but a mid-range one. Even if the mfrs you mention eat Tesla’s lunch at the high end of the market, it won’t matter much.
To date, Tesla has lost money on carmaking. This won’t matter if they can make money on mid-range cars, but that remains to be seen.
Their prices will probably be lower, as they actually know how to build cars in volume. Or more likely, their costs will be lower and their profits higher.
The cheaper the car, the slimmer the margins. Yet at the same time, the higher the expectations that the thing actually work all the time. Nobody in the market for a Camry (or a 3-series) would put up with the amount of BS that my buddy with the Model S puts up with, regardless of Tesla’s current absolutely platinum-plated service model. Which there is no way in the universe they will be able to provide to Model 3 owners.
Good luck to Tesla, they are going to need it. If you seriously think that Ford, Toyota, and every other volume maker on the planet can’t make a perfectly decent 200 mile electric right this second you are nuts. There is no magic secret in a Tesla. They don’t because they can’t make money doing it. GM will lose a small fortune on the Bolt, just as Nissan has on the Leaf, but they have actual profitable sales to cover that loss. As soon as the stars align just so such that making such cars is profitable, Tesla will be as dead as Saab. If Musk doesn’t run the ship into the iceberg at full steam ahead first.
khrodes1-
Bingo.
Clearly the major automakers know that EVs are the long term direction and hybrid powertrains are the shorter term solution to compliance. These guys might move slowly, but they’re not fat and content like 1960s/1970s era US automakers were.
With that being said, I suspect that one of the primary reasons why nobody has made a serious offer to purchase Tesla is because these guys know that while Tesla might have the dazzle at the moment, they’ve got the rest of the secret sauce: the manufacturing infrastructure, distribution networks, service infrastructure, brand awareness, etc.
If you were Toyota, BMW or Audi, and you know that you’re 24-60 months out from having a solid, competitive offering, why would you buy Tesla when you know that there’s no way Tesla can ramp up the distribution, service, support, nor offer wide enough power charging to make Tesla a serious threat?
Again, this is another reason why I think in the short and medium term hybrid gas-electrics will be the winners until there are charging stations at every gas station and electrified cars can be recharged within the same amount of time as a gasoline powered car (or at worst only marginally longer). Barring that, range anxiety and inconvenience will always trump the ‘wow’ and environmental factor of pure EVs.
As mentioned earlier: the mass market is far more demanding and much less forgiving than are the Tesla faithful / early adopters. There’s a big difference between moving 100,000 units per year and moving 1,000,000 units per year; Say nothing of the after market support that is then required.
Again, not saying Tesla cannot do it on its own, but the traditional auto industry is no slouch.
Meanwhile, a new find claims to have doubled Alaska’s known oil reserves.
http://www.wsj.com/articles/oil-explorer-claims-major-alaskan-find-1475619056
The problem with hybrid gas-electrics is that there is very little bottom-line difference between 30MPG and 40MPG. Maybe $50/month at the high end, half that at current gas prices. That’s nothing to get excited about.
The Prius did well because it was a lifestyle car, not because it was a rational purchase (for most). No other hybrid has sold in significant numbers.
Yes straight hybrids make little difference. A decent plug-in hybrid is another thing. 30 – 50 mile range on electric only would cover 90% of commuting and daily trips, the trick is getting the price/performance right.
SCE to AUX –
The problem for Tesla is that if the the German three make inroads into the profitable top end of the market they will control the profitable end of the market, not Tesla.
I think the biggest factor in terms of profitability (and success or failure) with electric cars is tied to the particular “next generation” battery technology that a company picks. Pick the wrong one, and your competitors will destroy you.
The next generation technologies improve and lower the costs of battery manufacturing, increase the density (making them smaller and lighter), and increase the life of the battery.
Different technologies bring different levels of these improvements. There is also the critical and difficult leap from laboratory to mass production. A manufacturer might select the best technology, but if it takes years longer than the competing technology to get to mass production, it’s a problem. Tie up with the wrong one, and you’ll be at a disadvantage to your competitors.
The other big factor will be the move to higher voltage charging which dramatically shortens charge times. Porsche is leading the move to 800 volts. Now I’m hearing about a 1000 volt standard that would get us even closer to a 300 mile range car that can charge in 10 minutes.
By the way, don’t let the high voltages scare you. The plugs aren’t active when you first plug in. The charging system waits till it’s plugged into the car and has run diagnostics before applying the juice.
My guess is that these new batteries along with new charging tech won’t be common until 2022 to 2025. By then turbo twins and triples will be replacing V6s and 4s in the ICE world, so it’s going to be interesting to see what happens in the market. I’m not the only one seeing this as evidenced by the announcement of so many EVs from the traditional ICE manufacturers. Like the auto manufacturers, I do talk directly with the companies producing the new battery tech (and have copies of their patents), so my knowledge is not based on what I read on the internet.
“a 1000 volt standard”
How do I get that in my garage?
Cuz if I can only get that at the electron station I may as well just keep going to the gas station which I feel confident will continue to carry Beech-Nut and Grizzly.
“a 1000 volt standard”
How do I get that in my garage?
With a big transformer
“With a big transformer”
and what’s going to be feeding that transformer? remember when you step voltages up and down, the current changes on both sides too. *Current* is the limiting factor here. as it is, Teslas can charge at up to 145 kW, so trying to do that with a transformer to step it up to 1000 volts means you’re trying to source over 600 amps from your 240VAC residential feed.
notgonnahappen.com.
it’s more feasible if you can get said transformer supplied from the distribution wires (7,800-13,200 volts) but that’s going to be expensive with a capital D.
“you’re trying to source over 600 amps from your 240VAC residential feed.”
Yep. Even *I’ve* heard of Ohm’s Law.
220, 221… whatever it takes.
Edit: I don’t know if the utility would even run distribution wires at ground level in a residential neighborhood… too much liability.
What do you guys think of the electric van put together by Deutsche Post:
http://fortune.com/2016/10/06/volkswagen-electric-van-2/
Apparently, producing an electric vehicle is a lot easier than an internal combustion vehicle. Is there a chance that Tesla is more of the lean company that the future needs for producing electric vehicles, why the regular car companies are hopelessly oversized for this business?
Everyone says it’s easy, but so far only Tesla’s made the only electric car that people want.
It’s funny when you think about it. Tesla understands the “longer/lower/faster/quieter/sexier” sales pitch better than any traditional auto maker.
GM invented that pitch, but they are pinning their electric hopes on a dumpy subcompact. Good luck to them.
+1
“longer/lower/faster/quieter/sexier”
And unprofitabler. Not traditionally a traditional auto maker’s goal.
Profitability is so 1998.
It’s coming back. Another Clinton’s on the way!
Nah, unless its all truly rigged (which it will be). Remember the lesson of 2000, whose vote matters again?
“unless its all truly rigged”
Oh, yeah, it was all well and truly rigged back in ’46 when Trump’s mouth was in utero connected to his shriveled pea-brain.
The so far only known case of idiopathic Zika. And everyone thinks there’s actually something *under* that hair mat.
Tesla has lost a couple of billion dollars since it was founded. Gee, it’s shocking that other automakers didn’t rush in to get a piece of that money-losing action.
none of the existing car companies were technologically incapable of building something like the Model S. What they all lacked was the *business case* for doing so.
Right. Because there was an obvious business case for the GTR, a car that was only ever going to have one year of decent sales, and for the Leaf, but not for establishing primacy over the electric car market for ever and ever?
Because making the unfortunately-styled runt that is the Bolt makes perfect sense, but spending an extra $1,000 per unit to make it into a car that Americans actually want doesn’t make sense?
Because there’s a “business case” for yet another futile attempt to sell Cadillacs in Europe? Other than the obvious one, which is that it justifies having senior VPs use the corporate jet for their European vacations rather than slumming it in first class.
JimZ, is it possible that you put entirely too much trust in Detroit’s business savvy? I know you’ve argued along similar lines before. The dog ate GM’s homework, they fact that they failed at something proves that it couldn’t be done.
Not saying you shouldn’t root for the home team, just that sometimes the true fans should be the most critical.
As JimZ and others have said before at length, in detail and often, there is also the faith-based engineering and resultant legal liability necessary to have a model S at this stage of battery and AI tech.
And none of T***a’s detractors here would argue for constant omniscience or sage judgement on the part of traditional automakers.
Dat don’t make T***a no smarter.
Kenmore, please explain the legal liability of making the Bolt bigger and better. I did not realize that there was an actual law preventing GM from making desirable cars.
It does explain a lot.
You know I was referring to overcooked batteries and Autopilot-like slapdashery in T***as.
Gimmee a bigger (& taller) Bolt for the same money and I happy-dance!
But phukkin’ physics happen, mensch.
Tesla loses money because its customers don’t want to pay the true cost of getting the stuff that they want.
Tesla should be charging another 20 grand per unit, but it obviously can’t get away with that. In essence, Tesla fans want a free lunch.
Established automakers make EVs that weigh less and have less range because making the cars work with smaller batteries lowers the cost. Since the OEMs are going to lose money on them but have to make the EVs for compliance purposes, they may as well reduce their losses.
you should probably spend less time trying to tell me what I think.
Goldman-Sachs, the company that said mortgage backed securities were a great investment?
Tesla’s stock got a HUGE stock market break when it soared to over $200 without a dime of profit. But we’re reaching the part where, according to Benjamin Graham, the stock market stops acting as a voting machine and starts acting as a weighing machine.
Lots of luck to the “just can’t catch a stock market break” people, but I think $30 billion market cap means you have already caught a major break.
For a company to have consistent losses for 10 years in a row and still have a market cap of $30 billion is phenomenal. To me, Tesla has a very significant risk of never making it big and instead be sold off for parts for pennies on the dollar. To take that sort of risk on a startup, I’d want to think I had a chance of making a 10x return. But for Tesla to make 10x return they’ll need a market capitalization as large as GM, Ford, Toyota, and Honda all put together.