
Tesla Was Cash Flow Positive Last Week, CEO Musk Says - apaprocki
http://www.bloomberg.com/news/2012-12-04/tesla-was-cash-flow-positive-last-week-ceo-musk-says.html
======
dave1619
Tesla Motors is in great shape. I've been following the company for a while
and recently drove the Model S. Amazing car in almost every way. What struck
me was that it's not an incremental improvement but really a radical (might I
say disruptive) improvement in terms of ride quality (super quiet), handling
(low center of gravity with skateboard powertrain), electronics (17"
touchscreen), cargo space (heard of the frunk?), reliability (electric cars
have far less moving parts), and store experience (Tesla retail stores are a
way better customer experience than a typical car dealership). It's difficult
to drive a Model S and NOT say that you've driven the future.

The Model S is so good that all they need to do is make it into a SUV (Model
X) and they'll have the coolest high-end SUV (coming 2014).

Then, they just need to make the Model S smaller (GenIII Bluestar) and then
they'll have the best small luxury sport sedan on the market (ie., BMW 3
series, Lexus IS, Audi A4 market). Elon Musk has said they're going after the
BMW 3 Series market with the GenIII car, and he's determined to make a best
car in that market. Just like the Model S is better than a BMW 5 Series in
most regards, the GenIII will be better than the BMW 3 Series in most regards.
I know it might be difficult for many people to accept that (especially since
the BMW 3 Series is legendary) but Tesla's got all the right pieces and has
proven they can do it with the Model S. Again, they just need to shrink the
Model S and make it more affordable.

But GenIII is slated for 2015 at the earliest and it takes a while to dominate
a car segment even after you have a stellar car. I expect Tesla to become
increasingly competitive (in terms of # sales) to the BMW 3 series by 2020 and
perhaps dominant by 2025 (if not earlier).

Elon Musk has repeatedly said that Tesla Motors is not a typical car company
but rather a technology company that will innovate at a blistering pace. As
long as they continue to do that, they'll be fine.

~~~
el_cuadrado
This is assuming BMW et all stop any innovation. But they won't. They will
offer an electric vehicle the moment it becomes feasible (and I am sorry but
200 miles range is still an exciting and expensive toy).

~~~
calinet6
This is like saying that Sony can make an mp3 player, so the iPod isn't
competitive in that market. Or that a 5GB iPod won't hold enough music, so
it's just an expensive toy. Within 5-10 years the battery problem will
improve, especially if there is demand. This is technology, not automotive
development. We're not in Detroit anymore.

They're in a different class. Tesla is set up to do it right from the start at
a much faster pace.

Tesla will be the Apple of anything that moves, trust me. It was clear to me
when I saw the Roadster design and the roadmap, but I digress...

~~~
ryanhuff
Its a bit presumptuous to say that Tesla is so different. Sure, they are
attractive at the moment because of unique niche they are filling. If BMW,
Mercedes, Audi, Lexus, Acura, etc all sold an all-electric vehicle with
similar range, Tesla's differentiation becomes much less unique, and normal
competitive factors come into play (scale, marketing, etc).

~~~
calinet6
It's a bit presumptious to say that Apple is any different. Sure they are
attractive at the moment because of the unique niche they are filling. If
Sony, HP, Dell, Acer, Gateway, Lenovo, etc all sold a laptop with similar
specs, Apple's differentiation becomes much less unique, and normal
competitive factors come into play (scale, marketing, etc).

So tell me, does that still hold water?

~~~
ryanhuff
Tesla carries the banner for upper-scale electric vehicles. If you substitute
the electric motor with a petrol engine, are they still so distinctive? If the
big luxury/sporty brands entered the electric car market in full-force
(several models, full advertising campaign) with cars of similar performance
to Tesla, Tesla would struggle mightily to stand out.

BTW, I am rooting for Tesla. I would love a Model S.

~~~
sliverstorm
_Especially_ when established luxury-sport brands have track records, brand
recognition, loyalty, and high perceived value. The major players aren't
dominating because the market is stagnant, they are dominating because they
are good at making luxury cars.

------
stephenhuey
Great news! Here's hoping they're able to place superchargers across the
country within a year as planned.

As much as one part of me wants to see Elon Musk succeed just to prove Romney
wrong for calling Tesla a loser, it's more important to see Tesla do well for
the benefits we may reap from companies like this trying to make better
solutions and provide excellent competition to the status quo. That being
said, I'm feeling pumped and want to shout out Sarah Lane's dorky-but-apt
response to Romney:

"Romney just called Tesla a loser company? ENGAGE LASERS, SILICON VALLEY!"

<https://twitter.com/sarahlane/status/253670586834890752>

Be inspired today!

~~~
temphn
I would argue it is possible to believe both that Tesla is a great company and
that Romney was generally right in that many of the green investments have
indeed been losers (Solyndra, A123, Beacon Power, Abound Solar, ...).

Lest we forget, Romney is/was a pretty great investor and entrepreneur
himself, just like Elon Musk. It's unfortunate that Romney included Tesla in
his list of green losers - he did start this fight - but Tesla is the
exception that proves the rule. The government has not come close to making
money on its green energy bets, and will not even if Tesla is a massive
success. It has lost $535M on Solyndra, $249M on A123, and $400M on Abound
Solar. Even if Tesla is profitable enough to pay back its $465M loan, this is
a very poor risk-adjusted return. Many of the other companies in the green
energy portfolio are reportedly quite sick as well; we shall see what happens
to the 26 that received loan guarantees in five years.

The dismal history of Russian and Chinese state-owned enterprises should be
sufficient to give us pause, but the reasons that people oppose government
funding of companies like this are several fold:

    
    
      1. The government has the power to regulate or tax 
         competitors into submission. Regulators have strong 
         political incentives to begin colluding with 
         funded companies at the expense of the consumer to show 
         that the investment was a "success". This can be done 
         without fingerprints by doing things like holding 
         competitors to a higher bar when applying for permits.
    
      2. Unlike the funds pledged by an LP, tax dollars are 
         extracted coercively (via threat of police action for 
         failing to pay the IRS). Arguably such acts should be 
         kept to a bare minimum. 
    
      3. The federal government is notoriously poor at being on 
         the cutting edge of technology; it is unlikely that they 
         will make better investment decisions than professional 
         investors.
    

One can go further, but it is striking to see how companies like Uber or
AirBnB run into political roadblocks, while other companies receive $500M
loans. The government is not just any old company or investor, the government
has guns and can compel action in a way that others cannot. As such it is very
powerful to have as a investor and very dangerous to have as a competitor. Too
dangerous.

~~~
mpyne
> The government is not just any old company or investor, the government has
> guns and can compel action in a way that others cannot. As such it is very
> powerful to have as a investor and very dangerous to have as a competitor.
> Too dangerous.

I get what you're saying but I really wish people would quit bandying about
the "government has guns" line. I'm one of the zillions working in the USG and
I can tell you that the left hand doesn't hardly even know what the left
finger is doing most of the time, let alone the right hand (and this is often
by design, to avoid exactly what you're talking about).

If you want to discuss hypotheticals of gov't gone astray then that's fine but
then we could also discuss those hypothetical meteors that might hit your
corporate HQ (hope you've been doing your disaster recovery planning).

Or we could quit acting like starting a business in the U.S. is really just
like starting a business in a country run by a junta, or that investing in
civilian-run businesses that further a societal and national goal is just like
establishing a command economy.

~~~
jpxxx
Whether the USG is a collection of well minded do-gooders, an inept
bureaucracy that can't tell one hand from another, a literal collection of
antichrists, or absolutely none of the above: the USG has guns.

~~~
mpyne
So do the militiamen in Montana, so what exactly is your point?

The bobbies patrolling the streets in the U.K. are _unarmed_ but people still
seem to respect the rule of law over there, companies can still be seized,
etc.

In fact there are probably even a few Western democracies without so much as a
military that still could pass laws to nationalize a business.

"Guns" are the least of your problems with government from a day-to-day point
of view.

~~~
jessaustin
The "gun" narrative, in addition to being literally true, also has the
rhetorical advantage of emotionally short-circuiting many people of a
particular ideological bent. While you fume about being explicitly associated
with the violent force that implicitly enables your everyday actions, you're
unable to reply in a fashion that will convince the majority of people who
don't have irrational ideas about guns.

(I don't necessarily mean "you" literally, but surely we've seen enough guns-
r-bad silliness online to know that it exists.)

------
debacle
Tesla was cash flow positive, as of last week, or Tesla was cash flow positive
last week?

Edit: It appears the be the latter. Not really impressive, but a good sign.

~~~
danielweber
Yeah, I think some people don't realize how easy it is to have a _week_ where
more money is coming in than going out, even if the company is failing.

Not that I think Tesla is failing. But having a bunch of orders/payments come
through in one week that you aren't buying much stuff can easily happen.
(Specifics depend on cash versus accrual accounting.)

~~~
mkopinsky
"We pay our employees on the 1st and the 15th"

I'm sure there are ways that accounting compensates for that though...

------
tjic
While I'm a huge fan of Elon Musk, and I even think Tesla is pretty cool, I'm
a little underwhelmed. Every one of my ventures could be cash flow positive if
I got a half BILLION dollar loan from the taxpayers and then was able to sell
my product with a $8k tax credit stapled to the side of each unit.

[http://techcrunch.com/2009/06/23/the-government-comes-
throug...](http://techcrunch.com/2009/06/23/the-government-comes-through-for-
tesla-with-a-465-million-loan-for-its-electric-sedan/)

~~~
j2bax
Considering what he's up against in the industry, I'd say what he's done is
fairly remarkable. My concern would be that if at any point one of the big
three see Tesla as a threat they will put efforts into creating an electric
car that undercuts Tesla's offerings and catapults Tesla into a high end niche
oblivion. That said, if it comes to that, I will see that as a different means
to the same end of reducing our gas guzzling obsession in America, and I can
only see that as a positive.

~~~
rikf
I think you would be surprised I think Tesla's strategy has three stages.

1) Niche high cost vehicle sold in low volumes(Roadster)

2) Medium cost luxury vehicle sold in medium volumes(Model S)

3) Low cost high volume vehicle sold in high volumes. (Model ???)

Obviously this is a gross over simplification but I imagine that part of the
engineering that is going on at TESLA is figuring out how to build 3 cheaper
and at a higher quality then anybody else.

~~~
j2bax
I am aware of their strategy, I just worry that the big automakers with their
massive distribution and infrastructures already in place could easily come in
and be 10 steps ahead of Tesla and provide a vehicle that isn't as sexy but
has the same appeal to the electric car market. I could be overestimating
their ability to innovate after so many years of sitting on the same old tired
technology, but something tells me that they'd be willing to step up if it
means they are going to be completely left in the dust of a tiny (by
comparison) company.

~~~
alxndr
"the big automakers ... could easily come in and be 10 steps ahead of Tesla
and provide a vehicle that isn't as sexy but has the same appeal to the
electric car market"

Aren't they already trying to do that? Chevy's Volt, Nissan's Leaf, Ford
apparently makes a fully PEV Focus now, as does Honda with a version of the
Fit, and Toyota's gotta be working on the Prius...

~~~
iyulaev
This +1

What Tesla has done is made an electric car and marketed it as more luxurious
and different from what's on the market. The Leaf is for hippies, the Volt is
nowhere to be seen. The Tesla on the other hand is sexy.

A bigger concern is how Tesla will expand from this market. For most
manufacturers, the high-end cars are not the major money-makers, and the
quantities they move are just too small (Lexus sells over 8 IS/GS for each LS
they sell). We'll see if they manage to expand from the niche they're in.

~~~
stcredzero
_The Tesla on the other hand is sexy. A bigger concern is how Tesla will
expand from this market._

The Nissan Leaf just isn't a good deal. If Tesla can beat range anxiety in a
package that costs $20k or less, then they'll have a winner. Sexy still sells
with econobox cars. (Fiat 500?)

------
codex
This is good news, but being cash flow positive over a week is not really an
impressive achievement. It's easy enough to game this milestone by
rescheduling payments, if they chose to do that.

Even if they didn't, it's such a short time frame it's hard to measure
anything because there's so much noise. Will they announce full profitability
over a 24 hour period in Elon's next tweet? One hour?

That said, I'm impressed with the early reviews of the car, if not by the
massive amount of cash that Tesla lost in the past year.

~~~
jonknee
I suggest that you start a car company, invent the whole stack, build out a
giant factory in Fremont, and a nationwide network of retail outlets.

If you're profitable during any part of that exercise, you can then start to
talk about it not being an impressive achievement.

------
salimmadjd
Is twitter now accepted by SEC, or does Tesla need to file bunch of paperwork
just because of this tweet?

------
confluence
I have a significant fraction of my net worth invested in TSLA and have done
so since the IPO. I believe TSLA will become a $50 billion dollar company over
the forthcoming decade as it rides 2 cost trends and global GDP growth. Elon
Musk does too - his renumeration package has TSLA pegged at a possible ~ $43
billion ([http://seekingalpha.com/article/786711-a-43-billion-tesla-
mu...](http://seekingalpha.com/article/786711-a-43-billion-tesla-musk-s-
incentives-of-interest)).

I add to my position every month when vol. gets high - so please don't buy it
:)

Fundamentally what people must understand is that electric cars have reached
ICE parity in cost, use and ease of maintenance. Furthermore they either have,
or will surpass, ICE vehicles in all categories over the coming decades on a
total cost of ownership calculation. Finally by the end of the decade the lump
sum cost of a comparable middle class electric vehicle at the dealer (or
website) will be lower than an equivalent ICE vehicle on the day that you buy
it.

There are 2 fundamental price forces driving this phenomena - and that is peak
oil, in addition to Li-on battery production related to the explosive growth
of smartphones/laptops/tablets over the last decade. Indeed this is what I
look for in any investment strategy - where is the falling waterfall in cost,
who is going to get fucked, and who is going to ride the barrel down. Falling
prices drive the future - look for converging falling cost trends and a
convergence of secondary technologies
([http://www.youtube.com/watch?feature=player_detailpage&v...](http://www.youtube.com/watch?feature=player_detailpage&v=1FyhLQOsNac#t=1410s)
|| [http://www.amazon.com/Running-Money-Honchos-Monster-
Markets/...](http://www.amazon.com/Running-Money-Honchos-Monster-
Markets/dp/B000GG4ZJK) || [http://gigaom.com/2006/10/26/jawed-karim-how-
youtube-took-of...](http://gigaom.com/2006/10/26/jawed-karim-how-youtube-took-
off/)).

 _> In the talk, which is about 45 minutes long, Karim also points to the
confluence of broadband penetration, Flash 7, digital cameras and phones, and
cheap bandwidth as environmental factors for YouTube’s birth on February 14,
2005. Then he plays the company’s very first video. Uploaded April 23, 2005,
it shows Karim himself standing in front of elephants at the zoo. “The cool
thing about these guys it they have really, really, really long trunks,” he
says. That’s about it._

Gas prices will increase over the next 2 decades whilst battery costs will
fall, squeezing ICE vehicles out the affordability range of most Americans.

Back in 1900 electric vehicles died because battery tech was not cost
competitive with ICE vehicles, and rightly so, they sucked. In 2012, ICE
vehicles began to die, because they were no longer competitive with electric
vehicles.

Welcome to the future.

~~~
marvin
I've followed your comments for a while, I think you have some interesting
insights.

But you are aware that betting big on Tesla like this is a very big risk,
right? It's got a potentially very big payoff (and probably an expected value
above 1), but there is still uncertainty. Tesla stock is valued a lot higher
than the company's assets, so there is still big potential for a major loss,
for instance if the established car companies are able to get their act
together in time or if some other, unexpected event happens.

I myself have about 15% of my (relatively small) net worth in Tesla, so I am
making the same bet you are, but I am curious if you've given the other
scenario any thought.

~~~
confluence
I have covered and perfectly hedged costless collars (via options - +/- 10-20%
depending on IV) on all my equity positions to protect myself against
catastrophic risks (aka black swans) at little to no cost to myself.

Here are some examples of risks I have considered (many more but cbf):
economic failure (GFC)/terrorist attacks on TSLA (9/11)/unexpected death of
main principals (Elon Musk et al.)/catastrophic accounting fraud (Enron/MCI
Worldcom)/financial failure (Solyndra)/bankruptcy (A123)/production fraud
(Fisker/BYD).

I've run many possible outcomes both in my mind and in computer simulations of
TSLA's future finances (programming rocks). I've completed DCF, Monte Carlo
and worst-case scenarios (by far the most important) on TSLA's future finances
- which although shaky under certain conditions - do not particularly worry
me, since I'm hedged, moderately risk taking and a value investor who doesn't
really give a shit what the market thinks. I've got a range of prices based on
market outcomes and future EV demand telling me whether to buy or sell.

I don't use leverage, margin, or derivatives that aren't fully covered and
hedged by my own cold hard cash no matter what the environmental situation -
let's me sleep like a baby. I hate uncapped risk - hate, hate, hate it!

I'm impervious to volatility, time decay and catastrophic risk.

My worst case VAR is 20% on the TSLA position - aka loss of 20%. I have no
problems with that - I'm actually used to mark-to-market drawdowns of 50-60% -
so 20% is peanuts (my current CAGR for the last 4 years has been 35% - mostly
because I'm the guy that buys in a crisis with a margin of safety
significantly below fair value).

My nightmare scenario is actually TSLA gapping up 20%+ without me being there
to lock in another costless spread.

I'm not impervious to nuclear war - but you can't hedge that shit.

I know risk, tech, finance and economics inside and out.

Concentration is for people like me who know what they are doing. For everyone
else - there's Mastercard.. I mean index funds :D

~~~
tocomment
That sounds amazing. Could you explain how you set up your hedge, and why it
doesn't cost you anything? I'm just starting to learn about option strategies.

~~~
confluence
Basic strategy (there are others): I own stocks in 100 chunk blocks. I then
buy the exact same amount of -15-20% puts to cover my downside risk and
simultaneously sell the same amount of ~+10-20% calls and use their premium to
make the insurance free.

My portfolio value, if hedged perfectly and fully backed with cash is now
locked to +/- ~20% (depending on IV) at little to no cost.

More here:
[http://www.investopedia.com/articles/optioninvestor/09/asset...](http://www.investopedia.com/articles/optioninvestor/09/asset-
allocation-not-enough.asp) || <http://www.theoptionsguide.com/the-collar-
strategy.aspx> || <http://www.theoptionsguide.com/costless-collar.aspx> ||
[http://www.advisorperspectives.com/newsletters10/Risk_Manage...](http://www.advisorperspectives.com/newsletters10/Risk_Management_through_Costless_Collars.php)

Mark Cuban used this to stay a billionaire through the dot-com crash:
[https://www.quora.com/How-did-Mark-Cuban-survive-the-dot-
com...](https://www.quora.com/How-did-Mark-Cuban-survive-the-dot-com-crash)

~~~
_debug_
TSLA Puts seem to be priced with higher IV than Calls at the same distance for
both near and far expiries (Calls at 120% vs. Puts at 80% of spot). I see Puts
at strike $27 priced at 200% to 166% of the Calls at strike $41.

Options chains from Google Finance :
[http://www.google.com/finance/option_chain?q=NASDAQ:TSLA&...](http://www.google.com/finance/option_chain?q=NASDAQ:TSLA&ei=Hv_EUNizAYL2kQXMEA)

So I'm assuming that the TSLA collar (unlike your other equity collars) is not
costless. Or is it? Am I missing something?

Thanks for sharing your thoughts, BTW. I'm just loving going through your
comments on other HN articles!

~~~
confluence
Yeh that's why I said ~15-20% - it varies with IV, I just take a different
spread than exactly +/- 20%. Fundamentally I don't want to be exposed to black
swan downside, and black swan upside is statistically rare - so I don't mind
losing that (things don't move up 30-40% in a month too often - manias/booms
are slow - but they have moved down 30-40% crashes/panics -> bull markets are
slow, bear markets are fast - and that is the asymmetry I'm exploiting to cap
my risk without negatively effecting my return - selling covered calls is
effectively free money most of the time, and buying puts covers my ass from
Enron like events and the asymmetrical movement between booms/busts/disclosure
negative information like bankruptcy).

~~~
_debug_
Thanks! Yes, (in my 4 years of trading experience,) I've only seen pharma
stocks move up 30-40% in a month (or day!).

------
weisser
Any innovation from regular car companies will be the result of
intrapreneurship. Tesla was built to do things differently.

It will take a massive company-wide change in philosophy for these other car
companies to compete with Tesla, but even then they will be dealing with an
entire workforce that is used to the old way of doing things. They might not
intentionally resist the change-it may just be an issue of being able to adapt
to it.

------
aioprisan
yes but they're still not profitable. big difference

------
ameen
While I'd been a Tesla fanboy in the past. I have serious doubts about the
role it would play in Mankind's future.

Electric cars themselves require massive battery packs, most of which emanate
toxic materials and/or require many toxic materials in its production and it's
ability to be recycled is doubtful at best.

A better alternative would be having Public transit systems (alternately
fuelled?) in place, so that fuel/road volume is used efficiently.

------
fxthea
Mmm my favorite kind of musk, CEO musk.

