There are a lot of issues being discussed by longs and shorts, but there’s really only one thing that will make or break Tesla. And that’s whether they can generate enough gross profit on Model S operations to cover operating expenses. Musk has assured us that they will have a net profit this quarter, and loaded up on delivery of high margin cars to get there. But the crucial question is whether Model S operations will be able to carry the company independent of regulatory credits and one-time credits.
The task at hand is monumental. Last quarter, they lost $10k on every Model S sold. They were selling Signatures for the first 2 months and then were at full production capacity for December. If they can improve that to a $10k profit, it would be a remarkable accomplishment. And together with regulatory credits and one-time credits, it could be enough get them to first quarter profit. But going forward, they’re going to need to make $25k gross profit per car. And each $1000 of improvement is going to be harder and harder to find.
Well in any business the first year or two are always tight financially. Your trying to get a hang of all the costs, figure out how well the product is selling, pay off debt, etc. Over time you start to work out the kinks and put more effort into maximizing profit and efficiency. In 5 years from now if Tesla is still barely turning a profit or having financial issues, then obviously that would be an issue. For a car company that's still in the beginning stages of its life, I'm really not too worried about it.
I object to your claim that "the" critical issue is net profit.
The cash position is equally critical if not more so. On the bright side (for longs) it seems Tesla has finally realized how much cash is needed to run an auto company and has delayed/cancelled the Model X. They might buy them some time short term.
Tesla will achieve significant economies of scale on the MS at 25,000-30,000 cars/year at one shift/day. Once the plant in tuned, overtime will be gone and they will not need contract labor to rework the cars. Component cost will drop with volume as well. Once SC network is deployed, demand will sustain 2 shifts/day and a production rate of 50,000-60,000/year. At that point most of the economies of scale have been achieve. The electric design itself should enable huge drops in costs.
Battery costs should drop at accelerating rate. Advances in graphene batteries within 3-5 years will cut the cost/KW-hr by 70% and increase battery capacity.
There are no such economies available to ICE autos. They key to investing is managing capital, reward/risk and anticipating what is coming.
Everyone knows it is difficult. Who says no? Obviously there are risks involved. It is also difficult to send some guys to the moon. How about a rocket launched by a small commercial venture? Has anyone done that before? Probably not.
The $25,000 gross margin per car is a fallacy. You are not talking about 2013. You are talking about the long term goal. Therefore, using $25,000 x 20,000 cars = $500 million gross margin is not correct. I don't think Elon has a perpetual plan to sell only 20,000 cars every year, for the next 10 years. He obviously is thinking of higher volume. The question is whether he could achieve it or not. Well, it is a question. However, using the 20,000 number as a permanent number to throw out a seemingly hard-to-achieve GM of $25,000 is not what I call a neutral approach.
OT, no I'm absolutely talking about 2013. Operating expenses were $115M last quarter. By the end of this year, they will be well over $125M. To cover that, you need to gross $25k on 5000 cars. And as you say, it's not impossible. But in my opinion, it's improbable.