
Tesla Is Facing a Crucible - allenleein
https://www.bloomberg.com/news/articles/2018-03-16/tesla-is-facing-a-crucible
======
neonate
Here's this article in a format that makes no noise:

[http://archive.is/wCQls](http://archive.is/wCQls)

The WSJ article it refers to is called "Tesla’s Make-Or-Break Moment Is Fast
Approaching":

[http://archive.is/ucf9q](http://archive.is/ucf9q)

The CNBC article it refers to is called "Tesla employees say automaker is
churning out a high volume of flawed parts requiring costly rework":

[https://www.cnbc.com/2018/03/14/tesla-manufacturing-high-
vol...](https://www.cnbc.com/2018/03/14/tesla-manufacturing-high-volume-of-
flawed-parts-employees.html)

~~~
dang
Since the CNBC article is by far the most factual, and doesn't seem to have
been discussed yet on HN, I'm going to try burying this submission and rolling
back the clock on the first post of that one:
[https://news.ycombinator.com/item?id=16587249](https://news.ycombinator.com/item?id=16587249).

The Bloomberg article isn't bad, but it's so generic that the discussion is
generic as well (Tesla in general, short selling in general). That's the main
trouble with articles that don't contain enough factual fiber.

------
TaylorAlexander
My bullish position on Tesla goes like this:

They had the same production problems on the roadster, the Model S, and the
Model X. Each time, the new vehicle was a “make or break” for the company.
Each time, there were reports of how these production problems would sink the
company. The company never sank. Tesla is now apparently “good” at making the
Model S and Model X. I always assumed they would have similar nightmarish
production problems with the Model 3, so all of these reports are sort of
expected for me. But I also know that Teslas are extremely popular in Silicon
Valley, where I live. That to me indicates that those with the means really
like the cars. So it stands to reason that once they are good at making an
affordable car, they’ll sell like hot cakes.

Musk mentioned recently that two things really stress him out: Artifical
Intelligence and what to do about the risks is poses for humanity, and the
Model 3 launch. I still have a lot of faith that Elon can make it happen.

And personally I really want Tesla to succeed. I think a lot of other people
do too.

~~~
slg
I do wonder if Tesla's biggest problem around the Model 3 launch was starting
by establishing very aggressive production targets. According to Bloomberg's
Model 3 Tracker linked in that article, the Model 3 already is the top selling
electric car in the country. It outsold the Chevy Bolt by over 2x in January
and February. That should be a huge accomplishment, but it is viewed as a
failure because it is a small fraction of what Tesla initially predicted.

~~~
nopriorarrests
Those production targets were established for a reason. Tesla is burning
unbelievable amounts of cash [0], and they need to convince investors and bond
holders that they will break this trend soon. Showing very agressive
production targets for M3 is the only way to do it.

[0] [https://arstechnica.com/cars/2018/02/tesla-loses-
another-675...](https://arstechnica.com/cars/2018/02/tesla-loses-
another-675-million-in-q4-its-biggest-quarterly-loss-yet/) "Tesla loses
another $675 million in Q4, its biggest quarterly loss yet"

~~~
slg
Tesla's bond offerings are routinely oversubscribed. The market is clearly
willing to continue to give them more and more money. I therefore find the
idea dubious that Tesla needed to be super aggressive with their production
targets or else they would run out of cash.

~~~
nopriorarrests
If I recall correctly, their last offering was more or less positioned like
"according to our production estimates, this is, probably, last time we ask
capital markets for cash infusion", and it was at the height of excitement
about the Model 3.

As of now, however, these bonds (1.8bln, issued last August) are trading
underwater [0]. They will probably tap the market once again this year, and we
will see what happen.

[0] [https://www.marketwatch.com/story/teslas-junk-bonds-are-
trad...](https://www.marketwatch.com/story/teslas-junk-bonds-are-trading-
under-water-and-it-could-spell-trouble-for-elon-musk-2017-11-10)

~~~
slg
Those were junk bonds in August. Tesla is still having success with other
types of bonds. Here is a more recent offering from January with lease backed
bonds [1]. Tesla sold $546m worth but had orders for roughly $7b.

[1] - [https://www.bloomberg.com/news/articles/2018-01-31/when-
it-c...](https://www.bloomberg.com/news/articles/2018-01-31/when-it-comes-to-
tesla-car-bonds-buyers-simply-can-t-get-enough)

~~~
Nokinside
Lease backed bonds don't scale. He can't tap to lease again and again.

Tesla is burning $4.2 billion per year now.

~~~
nopriorarrests
>Tesla is burning $4.2 billion per year now.

Where is this number is coming from? Their 2017 loss was around 2 billions,
half of what you say.

~~~
Nokinside
It comes from Barclay's analysis (they are very bearish).

Model 3 is not small volume luxury car as previous models. They are investing
wast sums for large scale production. Burning trough vast amounts of cash is
OK only as long as the production volume ramp up really happens in limited
time frame and quality and recall numbers are similar to Audi 4A.

Tesla must ramp up the production volume within a year or Tesla is financially
in the ropes.

If Tesla pays back debt $1000 for every car it sells. It must sell 4 million
cars to pay this year's projected cash burn. Tesla made a bet that it can
become large car manufacturer with Model 3, there will be no second changes.

------
gfodor
I have a model 3 and it basically feels like the iPhone of cars. Financial
issues could take them down, but you'd have to be a fool to bet against them.

Comparing the model 3 to other electric vehicles reminds me of when people
were comparing the iPod to other MP3 players based upon tech specs. At this
stage, the electric nature of the car just bolsters the design and UX of it.
Comparing it to other EVs because they happen to share the same type of motors
is stupid. They should be comparing the Model 3 to high end luxury combustion
vehicles because from my vantage point you're getting that kind of driving
experience, better even, for half the price. The only place where the electric
nature of the car creeps into your life in a negative way is when you consider
long trips. And even then, the impact is minimal because of the supercharger
network. (You are going to stop regularly on long trips for breaks anyhow, so
just charge the car.)

Beyond that, the only way the electric nature of the car impacts your life is
beneficial -- no more trips to gas stations and less cost of ownership. At
some point you stop even making the comparison because it's just a plain
better ownership experience so you don't think about it anymore.

~~~
BoorishBears
Out of curiosity, what’s a car you had before the Model 3 that you’d compare
as the “MP3 player”, and is it a recent car?

I ask because the Model S can’t compare with the S Class or 7 series on
comfort and luxury, yet you’re saying the model 3 should be compared

~~~
gfodor
I've never owned but have been in a relatively recent S class. It's personal
but the 3 is basically a pretty pure distilled car. If you hate buttons and
like symmetry and simplicity they basically took the car to what feels like
the logical extreme. Reminiscent of Apple it's a design that shows they
agonized over every button and additional degree of freedom for the user.

There is no dashboard, no key, the whole car is controlled through the center
console. The only buttons are entirely flush with the surfaces they are on.
They don't even have door release handles on the inside the door pops open
when you grab and depress the button flush on the handlebar to exit. Rip the
steering wheel out and there is no longer a clear driver's seat just two
symmetric front passengers. I find the design refreshing enough and the torque
of the engine responsive enough (with no transmission pullback) to say it
outweighs other potential creature comforts on a feature level. My last car
was a BRZ and I don't miss it too much :)

~~~
BoorishBears
... going from a BRZ to a Model 3 would give someone a little bit of bias.

All the things you described are very subjective. It's not "pure" it's
barebones. It's not "distilled" it's optimized for cost savings in a way that
would insult the average luxury car driver.

A mid-range luxury car these days often comes with a DCT or a very advanced
non-DCT transmission that's capable of mind blowingly quick shifts and creamy
smooth power delivery.

This is all coming from a guy who had a first month reservation for a Model 3
and went for a Volt instead after some hard thinking and a few... Tesla
antics... I disagreed with, so it's not like I'm one of the people who thinks
EVs "can't be enthusiast cars" like some people.

I feel like people are overstating what a change in drivetrains will do to car
manufacturers. It's true this drivetrain adds requirements for space for
batteries and infrastructure for charging, but car making will still be car
making (ironically, as Tesla has shown with it's production issues).

My money is on Tesla becoming the next Porsche as far as volume and market.
That's not a bad place to be, but it's not where the market has priced them
at.

~~~
gfodor
Yeah that's why I said it's personal. I feel the design of the car is
extremely forward looking and was primarily driven by good taste not cost
constraints. I hate to keep making the comparisons but it reminds me of Apple
ripping out all but essential components -- easy to see through the lens of
costs in the short term but in the long term provides freedom to take the
design further in the next iteration. The 3 represents a foundational design
that transitions elegantly to autonomous control (imho) and will provide the
vantage point Tesla needs to design their first from-the-ground up autocar.

~~~
BoorishBears
The problem for me is it feels like the market (and Tesla to an extent) has
jumped the gun.

Tesla hasn't demonstrated enough self-driving progress (and imo, no one has
yet) to justify the car's design to me, nor being a company with a 54 billion
dollar market cap.

It's one thing if FSD was just on the horizon, but there are an incredible
number of very hard problems to solve before we get there. Yet Tesla is
designing a car that requires FSD for justification of it's interior and
charging for FSD as a feature.

------
sunstone
In the run up to model 3 production Musk mentioned that "the production line
is the product" because it was needed to be highly automated to make a great
car at a low price.

Clearly getting the production line wrinkles ironed out has been a much bigger
challenge than Musk expected but that is typical of almost every thing that
Musk as done: Envision a way to make things an order of magnitude better. Work
like a bugger (while blowing through a dozen deadlines) to make that happen.
Eventually, come out the other side smelling like a genius -- because the
original vision had merit and was not just a pipe dream. The model 3 fits this
mold.

In terms of finance and cash flow, unlike previous near death experiences with
Tesla and SpaceX, now Musk could quite easily sell of a chunk of equity in
SpaceX to finance what's yet to be done in debugging the production line if
the markets won't oblige. But likely the bigger problem right now is time
rather than money before things come right. Most of the upfront production
line expenses will have already been spent, now it's a learning curve to make
it tick along as expected.

------
crowbahr
And how many times has this happened before?

Musk plays the edge of these things. If it wasn't way too ambitious it doesn't
seem like he'd do it.

------
Zigurd
Tesla is facing a test. There are some bad signs that point to deferring
profitability longer than expected, such as high defect and rework rates.

On the one hand, despite the challenges, Tesla has built more Series 3s than
Chevrolet has built Bolts. On the other hand that's about 15% as many per week
as Tesla thought they could do. The reason this isn't a fatal disaster is that
nobody else is yet willing to try to beat that. There is no real replacement
for a Model 3 available.

Building hundreds of thousands of cars per year is not something that industry
newcomers have managed to do for a very long time, nevermind electric aluminum
cars. This is a different challenge than competing against high-end BMWs and
Mercedes that also have relatively small production runs.

The advantage Tesla has is that they started the learning process early. The
competition is still a couple years from profitably selling a direct
alternative. But every month Tesla is late is a month of sales runway and
revenue gone.

------
xattt
Worse comes to worst, Tesla is bought out by whatever car company that has the
biggest gap in autonomous and electric tech.

~~~
resource0x
At what price? According to google, market cap of Ford: 44.30B, GM: 53.14B,
Tesla: 54.28B.

~~~
goshx
The "worst comes to worst" scenario will not likely be priced at 54.28B

------
brian-armstrong
Let's say Tesla does go bankrupt. What would happen next? Would GM acquire it?
Could they fix the production issues?

Also, would that endanger Musk's other projects? I seem to remember he's
pretty leveraged in Tesla, but I assume financially each company is separate?

------
vondur
I’m guessing if it came down to it, Tesla would be sold of for their battery
tech and battery manufacturing capabilities.

------
mcbits
Warning: This page will automatically blast audio without asking, potentially
ruining whatever you were recording, damaging your ears, waking the baby,
annoying the boss, etc.

~~~
tom_mellior
I'm with you on this, autoplay is evil. But I'm curious about the "ruining
whatever you were recording" part. Why are you clicking random Internet links
if you're in the middle of "recording" something (presumably, audio or video)?

~~~
Groxx
Looking up stuff as needed is relatively common for the more free-form
podcasts I've listened to in the past. There are also quite a few vlogs out
there, a Tesla segment showing site content wouldn't be too surprising.

I assume there are other formats where this comes up too. Podcast-like stuff
seems pretty natural tho.

------
antonkm
I find the concept of short selling a bit confusing, even though I've Googled.
Can someone explain this in an easy to understand way?

~~~
ams6110
I understand short selling, but the guy in this story says he's been shorting
Tesla for years. In that time, the stock as done nothing but go up, AFAIK. How
can he afford to still be shorting? As I understand it, a short position is
not something you can hold indefinitely... there's a point in time where you
need to provide the shares.

~~~
philipwhiuk
You just buy a new short position. Also you can have a short position lasting
a minute, an hour, a day, a week, a month.

~~~
philipwhiuk
(typically a broker will insist you have sufficient collateral period to
indicate you can fulfil the short position).

------
userbinator
I read the entire article and didn't see anything about crucibles.

~~~
traek
crucible

noun cru·ci·ble \ ˈkrü-sə-bəl \

2: A severe test

------
Someone1234
That's a pretty terrible article title, the mods should consider changing it
from "Tesla Is Facing a Crucible" to e.g. “Tesla’s Make-Or-Break Moment.”
which was the much better title of the article this article is based around.

I cannot tell if it was titled this to add an air of mystery or trying to be
too clever for its own good, but it is pretty shoddy either way.

~~~
freehunter
Crucible isn't a super common word, but it's not a super uncommon word either.
It means "a severe test where many things combine to influence the end
result". It is an entirely correct word to choose for this situation.

------
username223
The Model 3 seems like it was premature. It gets mediocre reviews (
[https://www.caranddriver.com/tesla/model-3](https://www.caranddriver.com/tesla/model-3)
), they have 180,000 orders, and they're fulfilling them at about 3200 a
month, i.e. 4.6 years to satisfy the current backlog. For scale, Toyota sold
about 32,000 Camrys a month last year just in the US. Heck, BMW sold about
34,000 3-series a month.

Tesla should have stuck to high-end markets. It looks like their foray into
mass production will end badly.

~~~
ams6110
And that's where some people were predicting Tesla would stumble. There are
dozens of boutique high-end car manufacturers. Ferrari, etc. Price is not
really too important for buyers of those cars -- in fact it can be part of the
attraction (a Veblen good).

Making "mainstream" cars targeted at middle-class buyers is an _entirely_
different thing. Sales price is a huge factor, and at that volume saving a
dollar or two on any given component is something you spend time trying to do.
Optimizing the manufacturing process is also critical. Chevy and Ford and
Toyota know how to do all that. Tesla doesn't, yet.

------
fictionfuture
Tesla is another "solution looking for a problem" type of company. They make
nice cars but the electric engine concept has yet to provide a real benefit
over combustion. (They say less solution but that's not really true is it?)

Another concept looking for a problem is crypto; as the only problems crypto
really solves are the ones faced when doing illegal transactions or hiding
money.

~~~
matthewmacleod
_They make nice cars but the electric engine concept has yet to provide a real
benefit over combustion._

That comment has absolutely no merit whatsoever.

