Forums

Tesla Financial Viability

Tesla Financial Viability

Is anyone else concerned that the company will end the year with only 2.9 million in working capital? they have burned 221 million since October. I have put down my $5,000 deposit and am close to making decision to buy. Just a bit nervous company is not out of the woods on the risk side. If for some reason company folded, not sure how anyone could service such a unique "Awesome" car. Feels super risky to me at this point...But I want the car! What to do?

Thoughts?

KevinR.co.us | December 20, 2012

Not concerned. I see a sound business model and consistent performance. Hope to see my car in about a week.

KevinR.co.us | December 20, 2012

Disclaimer: Reservation holder, stock holder, drank the KoolAid 2 years ago.

riceuguy | December 20, 2012

I believe they turned cash flow positive a few weeks ago, so they're likely to end the fiscal year with substantially more than $3m in working capital. Moreover, they're taking in a ton of cash this quarter with both deliveries and reservations, so reserve and relax!

Velo1 | December 20, 2012

I am not worried. TM hasn't really started high-profile marketing the car, outside the Galleries. I think once the public starts to see more and more Model Ss on the road, Model S ads appear on TV, and the general public can simply walk into to a Gallery and readily take a test drive (which is available at some Galleries); then a snow-ball effect will result.

I actually think TM is smart to work within their current approach of what I term low-key marketing, which permits then to get manufacturing up to speed at which point they will be postured to handle the increasing demand. Too many great companies fail because they grow too fast, can't meet customer demand, and start to implode.

With full production running smoothly and so many Car of the Year Awards, Tesla is poised to hit the ground running once the high-profile marketing of the car happens. I think the future is bright, TM has a solid business plan, and they are smart.

Carefree | December 20, 2012

You obviously read the article from our "best" friend John Petersen - see here: http://seekingalpha.com/article/1072761-the-true-genius-of-tesla?source=....

He takes every opportunity he gets to slam Tesla and EVs. He is a big time supporter of Oil and I am sure he shorted Tesla and is hoping (in vain) that it will crash. Don't listen to anything this man says.

Alex K | December 20, 2012

If you're interested in some more doom and gloom, you can read the MarketWatch hatchet job commentary at http://www.marketwatch.com/story/tesla-will-need-more-loans-to-stay-aflo...

There are also many counterpoints to this article in the MarketWatch comments section

July10Models | December 20, 2012

At this point the car will survive the company. If telsa folds and the Model S production lines comes to a halt, the value of the car should rise. It is not rocket science, the batteries used to assemble the packs are readily available on the market, electric motors may be serviced or replaced, the power electronics may be serviced or replaced, all other parts of the car can be serviced in a traditional manner. The car will survive the company and might be a better investment than the stock.

PureAmps | December 20, 2012

Don't believe everything you read on the Internet.

Let's think about this logically. If Tesla were to end the year (less than 2 weeks from now) with only $2.9 million in working capital they would be financially insolvent. If so, they should be in the process of either raising capital, laying off employees and cutting expenses, preparing a bankruptcy filing or all of the above.

Instead, we see them ramping production, building out more super charging stations along the East Coast, opening a European assembly and distribution facility, and delivering hundreds of vehicles throughout North America (first Canadian deliveries were today). These are not the actions of a company on the brink of insolvency.

I'm quite confident they will have more than $2.9 million in working capital when the clock strike midnight on New Year's Eve.

Nicu.Mihalache | December 20, 2012

John Petersen is my personal friend and I can attest that, to the best of my knowledge, he's not involved (anymore) with oil companies / interests. But I can also attest that he has been consistently wrong about Tesla for at least two years and counting. In some sense he was right that any new car model and especially car company has inevitable growing pains. Anyone around here remembers that the fist Model S should have been delivered by the end of 2011? The story kept changing and the "real" deliveries started September / October of this year and to this day there are growing pains.

John is heavily invested in AXPW, a small R&D company which has developed a revolutionary lead-acid battery, which has many real world applications but EVs will never be one of them. He started a crusade against Li-ion companies few years ago and he was mostly right
http://seekingalpha.com/article/1064411-lithium-ion-batteries-were-a-bus...

But somehow he went too far, including Tesla in his list. I really think he is sincere in his belief that Tesla will fail in short order, but in the same time I think he is a bit blinded by his success in predicting Li-ion manufacturers' failures. He will discover with a big surprise that Tesla is mostly a product company, a bit like a fruit electronics & computing company. Consumer markets have almost no resemblance to OEM / corporate markets, where every penny matters.

jat | December 20, 2012

He didn't actually provide a link to this report showing that Tesla will have only $2.9M in working capital. The last official filing was the 3Q 10Q (at http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-12-457610&CIK=1... ) which showed $85M in cash and equivalents at the end of September.

Also, producing cars involves buying a lot of materials and paying a lot of workers before you get paid, so I would not be surprised if ramping up production put a serious dent in their short-term cash flow.

shs | December 20, 2012

What really put the whole article in perspective is one of the last sentences:

"What’s worse, it has a poor habit of failing to deliver to customers the cars it has promised them, while simultaneously raising the prices of those yet-undelivered cars."

Didn't mention that lots of cars now shipping and that the price increase does not apply to those "yet undelivered cars" for people with existing orders.

Simply misleading and wrong.

fluxemag | December 20, 2012

I read the article as well. I actually read every article on TSLA that I can find. JP looks like a hack job, but to my amazement he is actually pretty well qualified to be a commentator. There were some pretty glaring errors in the article, from some basic math errors to mistaken claims about how many Signature cars were sold. Sprinkle in some condescending attitude and "holier than thou" comments and you get the feeling this guy spends a lot of time alone, possibly kicking puppies. He even leads the article off with this: "I'm an occasional critic of Tesla...". I suppose that's true if dedicating one hit piece a week is considered occasional.

I no longer own the stock but do have some January calls near the money.

Dr. Bob Reinke | December 20, 2012

For a number of years my company designed and manufactured automatic assembly machinery. One of my field trouble shooters when asked how the project goes would answer, "The faster we go the behinder we get." That answer was more true than given credit. Start-up is always a money loosing effort. Paul White of Ford Motors was in our assembly shop one day, and to another customer from IBM said it best: "Sometimes these machines take a lot of time and training to be productive, but when they get them up and running, boy are they money-makers." When Elon gets all the training done and the bugs out, these machines are going to be real money-makers.

gagliardilou | December 20, 2012

JP's attitude toward Tesla is ridiculous. Look, I am driving my Tesla model S and I feel this is the best car in the world. It performs way ahead of my expectations. He does not take that into consideration. The product is fantastic. Even people who knew I was waiting years for the car and that thought they "knew" about the car (even going to the Tesla website)but when they saw the car their reaction was "I didn't think it would look like that, I didn't know the acceleration was like that", etc...

@Tesla303

Just buy the car. You have nothing to worry about. I plan on paying the car off with the stock I purchased. Hows that, the company that makes the car pays for it also by doing such a great job that their stock keeps going up. Remember this is disruptive technology - get in early!

Dr. Bob Reinke | December 20, 2012

BYW -- I'm long on a lot of Tesla.

mallynb | December 20, 2012

Tesla is a start-up and startups are inherently risky. I'm in because of Elon Musk. If you want the scoop on him, check out the current issue of "Smithsonian." Musk is included in their list of American Ingenuity Awards, starting on page 46. They have more credibility than most analysts who market their pundrity by "analyzing" earnings statements and balance sheets.

gregv64 | December 20, 2012

I'll just point out that Peterson's article is all based on a report issued by JP Morgan. This report had a target price of $37 for TSLA, so I'd say the authors reached a different conclusion than Peterson.

lph | December 20, 2012

Mallymb,
+1
Elon did not become a billionare by accident, and it was in the area of finance!
He knows what he is doing IMHO.

David Trushin | December 20, 2012

There seem to be a lot of articles out there that are picked up by web streams by people who are either reporting old data or just plain made up stuff that they heard. Tesla must be doing something right to provoke such animosity.

Velo1 | December 20, 2012

^ Excellent point DT: if there is that much animosity, you know people are paying attention. I have testified a lot in court as an expert witness. Typically when the other side has little ammo to neutralize my testimony, they start picking on the numbers in my engineering reports. My clients tell me the other is desperately grasping at straws.

Velo1 | December 20, 2012

EDIT: ^ ...the other "side" is grasping at straws" (is an EDIT feature really that hard to include here?)

riceuguy | December 20, 2012

Edit is on the far top left of the page...

FLsportscarenth... | December 20, 2012

Putting aside my enthusiasm for Tesla and its products, there is pretty strong evidence for massive positive change in Tesla Motor's financials in the next two quarters... Counting in 2.5K deliveries for 4thQ12, having paid reservations for more than half of next year's production...

During the delays of 1Q and 2Q 2012 I would have VERY serious doubts, but deliveries combined with growing numbers of paid reservations talk...

Elon has done it, Tesla will clearly be around in late 2013. And likely in a very strong position.

Sudre_ | December 20, 2012

I bet that even after Tesla posts a quarterly profit JP will still put out a piece the next day explaining how the company is going to fail and the numbers aren't real.

When ever I see his name attached to anything I just skip it. The guy has lost the ability to understand how things work. He really wants his lead acid battery company to succeed so anything lithium must fail in his eyes.

If only he at least had good data and not a mixed mash of fact followed by made up stuff.

Tesla303 | December 20, 2012

Great feedback all...nice to know Tesla owners are also so smart and well educated! Time to start picking options on my new P85

kidalex | December 20, 2012

The article has too many math problems and many statements are simply untrue

Captain_Zap | December 20, 2012

The skewed news that intends to spook people shows up routinely whenever big stock option shorters are coming up on a settlement date or when there has been a nice run up with the stock. There are many factions and groups that truly want Tesla to fail. Sad but true.

As you get a feel for what the real facts are regarding Tesla you will become far more confident about the company and be able to vet out the phoney news sources quickly.

noel.smyth | December 20, 2012

there were a couple of very negative 'blog' articles today. after reading them a few times i believe they are inaccurate and biased, driven by the options expiry of dec 22. basically they are the losers if the stock does not drop tomorrow. lets say tesla hits 3500 S sales for this year at an avg of 90k, thats over 300mm in revenue on the S and lets say they do 30k next year at avg of 75k per, that over 2BB in revenue. the demand is there, the product is awesome, they have yet to advertise. they have a product that they cannot make fast enough with a 25% margin and just started being cash flow positive. i suspect they don't catch up to the demand until well into 2014 or beyond (with the X coming out it could be past 2014 ) and there is considerable upside in the EU market. I am long on telsa.

MB3 | December 20, 2012

The 3Q financial statement of cash reserves did not include the follow-on offering that raise about 300M (I think). Tesla has plenty of cash on hand and should be cash flow positive at the moment. The picture is looking better every day because the number of new reservations is growing. Tesla is starting to produce in other countries as well. Demand is not a problem and with production now apparently well over 400/week, either is production.

SD Supercharger | December 20, 2012

@noel.smyth +1
You hit the nail on the head. A lot of these negative articles are written by the "shorts" ---who are starting to get desperate. Sprinkle in a few big oil guys, and a few biased individuals who conveniently leave out important facts, and you get several articles that collectively are not worth the time of day.
The good news is that if large funds believe these guys, it will drive the stock price down temporarily and we can purchase more stock at a reduced price!

DTsea | December 20, 2012

It's pretty simple. For any new, complex product, after the development phase, the factory spends a lot of money in inventory as rates rise (the cars take finite time to build, and the parts suppliers have to get paid) while they build increasing number of units. So while production rates rise, cost of goods sold precedes revenue. (you are building 400/wk, but selling the 200/week you built last month).

This is why Tesla (and airplane manufacturers like Boeing and Airbus) like advance payments. They pull some of the revenue (booked as inventory) forward to where the money gets spent.

Once rates level off, revenue matches expense. Build 400, sell 400. Pretty simple.

If rates go DOWN, things look great for a bit- build 200, sell 400 you built last month. Obviously that doesnt last.

So, the analysis tools Mr Peterson quotes are good for businesses producing at steady state. But, when financials are only shared quarterly and production rates are climbing rapidly within the quarter, analysts extrapolate that the high spend (3Q, building up) and low revenue (3Q, just getting started) will continue. Of course this is very misleading if you deliver 250 cars one quarter and 2500 the next, as seems to be happening.

So, unless there are big R&D expenses (say for model X) or massive disruptions (high scrap rate) that $2.9M projection seems pretty pessimistic.

Morgan Stanley's Nov 3 report (if there is a later one I couldn't find it) projected Tesla to start turning quarterly profits in 3Q13 and to have about $60M in cash at end of 2012. Doesn't sound like a doomsday scenario to me.

https://docs.google.com/gview?url=http://www.fjordcap.com/Content/downlo...

fluxemag | December 21, 2012

FYI that report is November 3rd 2010.

JohnQ | December 21, 2012

Everything here makes sense but need verification of high margins (ie, 25%). Let's see what the financials say after Q4 when they have a fair number of deliveries. I don't doubt their margins will be good but want to see the financials.

arnebjarne | December 21, 2012

I am a TSLA stock holder, and I read what mr Peterson has to say. Mostly he is very to the point, and, as I see it, what he says about transitional economy holds water. By the way, he has profiled himself as an environmentalist and his speciality is green energy investment.. He writes page up and page down about this stuff, and is definitely not an oil man, contrary to general opinion in here. I find him technically thorough and generally worth reading.

That said, I think he is underestimating the market for EV cars. I believe the world is FULL of people who wants this technology. And the technology is much better than he thinks. He says that batteries are not becoming better, that they cost too much and the capacity/cost ratio is not increasing. In that regard I also think him wrong.

All in all, if I buy a stock I gamble. I can afford to gamble a little, it makes life interesting.

But what it all comes down to is: I really want a Model S in my garage.

If you are interested in easy money there are many other companies with even brighter futures than TSLA in the horizon.

arnebjarne | December 21, 2012

oops. That last sentence should say: ..in the near horizon.

dstiavnicky | December 21, 2012

Lot's of speculation for sure. Reminds me of my early days at Apple. Ups and down are a guarantee when you are trying to change the world. Growing too fast can be just as critical as not growing.

I'm waiting for my Tesla because I know a game-changer when I see one. I'm long on Tesla stock but certainly expect a bumpy ride. I'm in now because I believe their is far more up side than down and I'd rather take my chances early before the BIG announcements.

shs | December 21, 2012

The current situation with TSLA reminds me of the time when Apple was struggling, and I asked my broker to buy several thousand shares at $6. He said, “Steve, don’t let you emotional attachment to a company influence your investments. I recommend you buy Compaq at $40, instead. It is a much better investment.” No question that I was an Apple fan boy, although they were not called that then, bu needless to say when I sold the Compaq at $20 and Apple took off again, I realized that my knowledge and experience with tech might actually be more useful in picking stocks than my broker and all his analysts. I hope it is the same with Tesla.

Brian H | December 21, 2012

As Elon and others have noted, if you want to get rich, starting a new automobile manufacturing company is not the best way to do it. Even in the best case, the rewards are not proportional to the risks of failure.

July10Models | December 22, 2012

I think Tesla will enjoy a nice margin north of 22% until they start making gen III vehicles. I also think the Model S is a bargain at it's current price point because not another manufacturer is even coming close to delivering an equivalent product. Been holding TSLA since IPO and will continue to do so after my car is delivered.

Timo | December 22, 2012

@arnebjarne If you are interested in easy money there are many other companies with even brighter futures than TSLA in the [near] horizon.

That sounds like someone shorting the TSLA. Especially the reference to "near future". Tesla is extremely good long term investment, not short term, assuming it keeps growing like it looks like doing.

arnebjarne | December 22, 2012

@timo:
I am not secretly hiding out in my rabbit hole saying I own Tsla shares and at the same time shorting them. I am just saying that this is a gamble. Other investments are safer, I believe. Right now it can go either way. But I am riding it hard:-) You never know if the value will stay stable for a while and then start climbing, or lose a bit at first. I do, however, agree that this may be a very very good investment in the long run.

HH | December 22, 2012

My favorite part of every Peterson article is the disclosure:
"Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours."
For all the ranting and raging this guy does against tesla he can't bring himself to short it. If he's so convinced, why wouldn't he?

Sudre_ | December 22, 2012

Because it is easy to say one day in the unknown future company xyz will fail. If 20 years down the road Tesla fails JP can say, "I told you so."

It is funny how many of us have put our money where our mouth is and bought stock yet all the nah-sayers will not. I guess lack of backbone or their 'wife, son, brother' has shorted the stock.

Nicu.Mihalache | December 22, 2012

John has been working all his life to bring small companies to the market and help them succeed. He has a visceral aversion towards shorts who create so much damage to those companies and he refuses to do that himself. As simple as that.

HH | December 22, 2012

I'm sorry but vitriol masquerading as thoughtful analysis isn't really helpful to small companies either. That's like saying someone is principled because they never hurt anyone directly but rather just encourage others to do so. I don't find the degree of difference between causing problems for a company by shorting and fomenting others to short very compelling or very principled. And I actually think he has some good points to make but, by my reading at least, his form betrays a weakness in content.

ronlitvak | December 22, 2012

I usually don't comment on stock matters. I read everything I can find and try to absorb all the opinions as to stocks and industries in which I have an interest.

The people who spend energy slamming John Peterson (and, more recently, John Shinal) for having a dim view of Tesla's prospects provide me with two important pieces of data: (1) they speak of a passion for a company that does harken back to the passion people voiced for Apple when it was struggling, and (2) their voices lose credibility with the increased volume and venom of their attacks. The first point is one that registers as positive for me: a lot of people with a passion for a company and its products can help buoy a stock in troubled times and spread the gospel the way Apple minions did. But with loss of credibility, WHAT they have to say gets washed out.

I have a substantial long position in Tesla. But, as I said, I read everything, and Peterson has been presenting the downside case articulately. Several of Peterson's positions have proven to be mythological and wrong (he used to harp on the rare-earth metals in Tesla's batteries and motor, until he had someone explain that there are no rare earth metals in either; he urged there would never be enough mine-able materials for a robust EV industry, and that was debunked with studied analysis of the deposits of lithium and other components; he wrote that, when Tesla was going to need funds this past fall, the stock would be taken to the woodshed and severely beaten, which did not occur; etc.)

So, when he now writes his opinion that Tesla is out of working capital as of 12/31 (including the $200 million they just raised) I take it with a grain of salt, but I do go back to the model I'm using to view liquidity and downstream value for this company. And, I double-check my copy of the JP Morgan report he cites.

JP Morgan's report, as it turns out, says no such thing. They model Tesla having $129 M cash on 12/31/12.

About, JPM: JPM formerly covered Tesla, but they had a parting of the ways with the analyst who covered the auto industry, so this new report is a resumption of their coverage with new analysts. It is very conservative at every turn, and still values the stock at $37/share. By conservative, JPM models only 18,000 Model S sales in 2013 versus the company's stated plan of 20,000 and the suspicion by many of us that they could easily accommodate 22-30,000 without catching up with surging demand. JPM models almost no Model X sales in 2014. They model declining volume of Model S sales after 2015. On the Model X, they have only a couple thousand being sold in 2014 and only 10,000 being sold in 2015. After peaking in 2016, they have that model showing declining sales as well. And, on Gen III, they have it not being produced at all until 2017 (I'm still thinking 2016) and only reaching 75,000 units per year in 2020.

Moreover, JPM has gross margins lower than the company's stated goals in all models at all stages. Their model reflects very low powertrain sales and development services with all such sales ending in 2016 and 2014, respectively.

With all of these conservative estimates, the JPM report stills computes a $37 value. What this means is that, if Tesla exceeds these conservative targets, their analyst will undoubtedly be raising his target value for the stock.

And a note about John Shinal's recent articles: he has a wait-and-see attitude toward the stock. He sees the current risks. Some there said that, by the time he changes his mind, it will be too late for him to profit. I disagree. Current stockholders who are wanting to hold for a considerable period and watch the value increase many-fold NEED investors like Shinal, who are willing to wait to get in. If TSLA is to go from $34 to $340, as some here believe and want, it will need a whole lot of new investors wanting in at $40, $50, $100, and $250. So, let the more cautious investors be: they are entitled to come on board when and as they choose.

GoTeslaChicago | December 22, 2012

ronlitvak,

Thankyou for your insightful comments about JP Morgans (conservative) estimates for Tesla.

My thoughts are that the JP Morgan numbers must be projecting a very slow ramp up of the Model X in the 2nd half of 2014. Personally, I feel the learning curve and ramp up will go much faster the second time around.

My (optimistic) projections are for probably 40,000 Model S and 20,000 Model X for 2014. I realize that the 20,000 annual rate for Model X might take a little longer and may not take place till 2015.

"Nicu: John has been working all his life to bring small companies to the market and help them succeed. He has a visceral aversion towards shorts who create so much damage to those companies..."

My take is that he has seen so many of these small start ups fail despite the optimism of their early backers, that he has became bitter and jaded. Tesla is the one that is going to succeed beyond expectations and he just can't see it, even when it is staring it in the face. Very sad.

GoTeslaChicago | December 22, 2012

even when it is staring him (not it) in the face.

Brian H | December 22, 2012

ron;
About the timing: you remind me of the quote (forget whose), "I have become very wealthy by buying too late and selling too soon."

Nicu.Mihalache | December 23, 2012

@ GoTeslaChicago

Yes, I think he has just seen so many examples and none of them managed to go around the Valley of Death. I think Tesla had this moment in 2008. He thinks it is now and that they have little chance to emerge. I think that's because he knows there is generally a huge gap from public communication / perception and reality when it comes to Li-ion. He has a hard time grasping the importance of the Tesla battery design, using 8000 hamsters to power a carriage. In my opinion, is is almost magical to take small cheap bits with average quality and put them together and get an A++ battery pack and still maintain it relatively cheap.