Let's assume that Tesla gets to meet Elon's goal for 2013 and sells 20,000 models Ss. Let's also assume that $90,000 is the average selling price. That works out to 1.8 billion in sales. Now Tesla has about $100 million in operating expenses a quarter, or about $400 million a year. In order to cover this they'd need over a 22% Gross Margin. That frankly is not going to happen. If we're incredibly generous and give Tesla the 17% margin of Mercedes they lose $100 million. If you cut it to 10% because you know this company has zero economies of scale, the highest margin cars are already made, then they're new at this you're looking at $220 million in losses. Combined with Tesla's expected losses from the current quarter and you have negative owner's equity (aka you're bankrupt). So the everything goes perfectly scenario is that the company comes close to breaking even, the slightly bear case is the company goes bankrupt. I'm not invested either way but I'd be terrified if I was long this stock.
Help me understand one thing, just one thing, as it is rather perplexing, and has been perplexing for a long time. You do all this analysis and come to a conclusion that TSLA "comes close to breaking even in a perfect scenario." And that in "the slightly bear case the company goes bankrupt." So no real upside and a huge downside according to your calculations and reasoning. And then you say you are not invested either way. Huh??? Why bother to do all the work and the thinking if there is not going to be a payback? Nolo comprendo! But you are not alone, the real Kobodie and BallCoach take a similar stance. Nolo, nolo, nolo comprendoooo!
rm1280, for a lot of us, I’ll admit it’s constipated decision making. Guilty as charged.
If you are interested in this sector, there are lots of interesting things going on. Ford is making some great manufacturing technology and sourcing changes. GM continues to get smarter about platform opportunities and protecting brand. The Dollar Yen relationship really shifts the dynamic of Japan manufacturer competitiveness. The correction to Europe demand is in and understood, new safety and control technologies are burgeoning, and it’s just a wonderful time for consumers. All this is pretty easy to see and understand.
And then there’s Tesla. There’s no doubt they’ve built a really intriguing car. Yet the shiny object in front of us blinds us to all the things that are going on behind it. Based on my reading, it really has been an operational struggle. The feedback even from eager and supportive owners shows repeated freeze-ups of the car’s major operating system elements. (Problems of much smaller magnitude on the Leaf and Volt were headlines in the industry.) They continue to lose money. All the metrics show they are still a long way from turning the financial corner. I’ll apologize in advance, but as ballcoach pointed out there is no such thing as one week of positive cash flow from operations. Sorry but this is a non-measurement in a $4 Billion publicly held manufacturer operating under GAAP. Yet Tesla can raise money at the drop of a hat. They have a very dedicated interest base among enthusiastic shareholders and sell side analysts.
The industry has been a great place to put your money over the recent days. That includes Tesla. I believe the near term holds more upside. I just can’t decide about Tesla. It’s crazy to believe there is a viable business case yet. But it’s crazy to bet against them. So some of us dabbling in other auto issues are simply watching Tesla way we’d watch football but not bet on it. Hope that’s clear enough to comprende without sounding dumb.
Simple, because of the real possibility that people ignorent to these numbers continue to buy into follow on offerings keeping the company afloat indefinitely all the while Tesla comes nowhere near making a profit.
I see it somewhat as you do, User. On the topic of negative shareholder equity, remember that as long as there are people willing to lend Elon Musk (EM) the money he wants, he can keep pushing the equity needle back above zero indefinitely. I admit I am not too familiar with Tesla’s history. I have not been involved in any auto stocks until last fall. Looking back in news archives and newsletter articles, it didn’t seem too hard for the company to raise cash through an offering.
Last fall the 2013 EPS outlook was about $0.38 per share or a forward P/E of 75-100 at that time. There are crazier valuations out there (though not for automotive companies). I hadn’t looked at the number until Sunday when I read the Reuters update saying the estimate for Q3 is $0.06 per share. That’s when I checked back on the Analyst Estimates link and saw full year 2013 consensus EPS is now $0.09 per share. So the 12-month forward-looking EPS is now over 350! That’s a big number in any industry. I certainly would not participate in another offering, were it to happen (and I think it will before the end of June). But nobody should be astounded to see another successful raise.
Back to your quick look. $100 Million expenses per quarter is a bit on the low side, I think. The continued Model X work and the Generation 3 car will keep the R&D number where it is. There will also be higher warranty reserves and actual warranty expenses with more cars on the road, and higher SGA as more stores open. Those are to be expected. I don’t point them out to be critical of the company. Nonetheless expenses will be at least 20% higher than your $100 Million number. And then there is depreciation that will come to roost on the substantial PP&E base, as well as a real income tax bill. Translated, this means EM’s stated Gross Margin target of 25% is insufficient to drive a profitable Q3. In fact, to achieve $0.06 in Q3, with five thousand $90,000 cars delivered in Q3, it will have to be at least 28%.
Bottom line: Tesla is unlikely to show a profitable quarter before Q4, and will almost certainly lose money in 2013. They will have to have another raise of some kind. Now from what I’ve seen none of this means the share value will not in fact go higher. Believe me, I disagree with the market’s valuation. I will not try to catch the potential upward rise that I have missed. It’s just too late and too expensive now. Like you, I am terrified of being long, and will not participate. Best to all non-offensive posters here. Don’t get hurt.
The next stock offering will be a defining moment for Tesla. I find it hard to believe that the new money will not want their pound of flesh, given the lack of profit so far. The fundamental numbers point to Tesla stock to be high risk and low reward. The company may well turn out a very good product -- time will tell. Seems to me we have two camps on this board. The enthusiasts who talk mostly about the product, and the naysayers, myself included, who talk mostly about the stock price.
-Model X uses the same platform as model S = cost will be cut down.
-3rd Gen virtually uses the same plateform as model S, with minor changes = cost will be cut down
-TSLA cut R&D by about $14 million from 2nd quarter to 3rd quarter, they can easily do that again.
-unless TSLA is building another factory we dont know about, cost will be cut down.
-dont be silly shorts, R&D has been moving down as model S launched no UP
Sentiment: Strong Buy
here's another thought for you
((((((((At the end of the 3rd Quarter, on NOVEMBER 5th, 2012. Reuters reported the following information on TESLA's cash on hand:
"The company [TESLA] ended the third quarter with $109 million in cash. After the quarter ended, it raised $222 million, bringing its total available cash to $330 million."
Going into the fourth quarter, of 2012, TESLA has $330 million on hand. With R&D, SG&A eualling about $100, TESLA is clearly doing great financially. That $330 million in cash on hand doesn't include revenue of projected deliveries of 2,500 - 3,000 model S which is another $25million - $30million with a conservation 10% margin.
So going into the first quarter of of 2013, TESLA has aprroximately $350 million minus $100 = $250Million.
With 20,000 Model S set to be delivered in 2013, gross margin of 25% x $70,000 = $350,000,000 in revenue.
As for R&D cost, it will be lowered significantly from the current mark of $60million to approximately $20million and with SG&A around $40million, you are looking at profits estimated to be approximately $240,000,000 for 2013 on 20,000 MODEL S SOLD.
Elon has stated that production numbers might be pumped up if demand reamins high. Therefore, assuming TSLA delivers 30,000 model S, then PROFIT IS about $345,000,000. With MODEL X in the mix with another 15,000 expected delivery for 2014, PROFIT for 2014 will be $502,000,000 (estimate).
Summary (all numbers are estimates)
2013 profits = $240,000,000 (20,000 model S delivered)
2013 profits = $345,000,000 (30,000 model S delivered)
2014 profits = $502,000,000 (30,000 model S delivered and 15,000 X delivered)
2014 profits = additional revenue form posible generation 2 roadster & pickup truck.
2015 profits = 200,000 generation 3 vehicle at 30-40k price per car (you do the math))))))))))
Sentiment: Strong Buy
How would profit look like as stated by GEORGE BLANKENSHIP: TSLA can produce up to 50,000 MODEL per YEAR.
GOOGLE UP THIS ARTICLE: the Detroit Bereau George Blankenship
Sentiment: Strong Buy
You're calculations are way off, you're forgetting that TSLA's burning through cash at the moment because of all the R&D cost asssociated with research and devoploping the model S, which consists of the following:
Buying and upgrading the NUMMI plant, robotics, assembly lines, stamp equipment, paint robotics, battery research, protypes, etc. R&D for vehicles always usually end up in the BILLIONsSsS, TSLA was able to complete all the above task with under a billion dollars, a very effecient rate if you ask me, mercedes is spending 3 times as much developing in China (CHINA! where things are suppose to be cheaper). VOLKSWAGON will be spending over $15 billion in R&D alone for the next decade. Again, TSLA spending $1 billion is nothing. Even the Chinese made battery vehicles are more expensive, Search up BYD electric cars made in CHINA, even the CHINESE can't build their electric cars cheaper than TSLA (that alone should tell you something about TSLA's efficiencies).
Secondly, now with research and development for model S completed, TSLA will be spending less on R&D, they can easily cut operating expenses down. No need for new equipment, no need for spending on stamping machines, no need for spending on robotics, no need on speding to upgrade, etc. cost will be driven down dramatically nullifying your thesis that TSLA will continue to burn through cash. So please, stop trying to spin a bunch of smoke and mirrors. You shorties are in a tight position and its been reflected on stock prices, TSLA stocks are slowing inching up higher and higher the past two days, volume is much higher than usual, which means Shorts are running for cover, Consumer reports are about to publish one of the most detailed articals on TSLA (free advertisment), ramp on to 20k is finished, time to work on 30-40K production (TSLA has ability to push 50k production with every equipment currently in place--google up the DETROIT Bereau George Blankenship), TSLA CEO will be keynote speaker in front of more than 50 large investment firms on FEB 5-6, ELON is about to announce better than expected results for Q4. SHORTS ARE DONE!!!
Sentiment: Strong Buy
While some R&D costs will stop, as you say, other expenses will start. In my humble opinion, warranty & recall expenses, which are incredibly difficult to project, are high on the list of new potentially large expenses.
Again, firstinflite, you are wrong in this remark:
"...you're forgetting that TSLA's burning through cash at the moment because of all the R&D cost asssociated with research and developing the model S, which consists of the following:
Buying and upgrading the NUMMI plant, robotics, assembly lines, stamp equipment, paint robotics, battery research, prototypes, etc" (Fixed your spelling, by the way. Slow down, man!)
No, no and no. R&D is not spent to acquire PP&E. This is capital expense. The R&D you see on the Income Statement is expensed. The PP&E you see on the Balance Sheet is capitalized. That's why they call them Income Statements and Balance Sheets.
Can you Longs help out your head cheerleader here already? Shoot the poor guy is posting 70 times a day and you're letting him embarrass himself to no end. You should be ashamed. Now get out there and help the guy pump!