
Is Tesla Doomed? (Bob Lutz's Commentary on Tesla) - protomyth
http://www.roadandtrack.com/car-culture/a26859/bob-lutz-tesla/
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btilly
Hrm.

I decided to fact check just one claim. The $4000 figure.
[http://www.autoblog.com/2015/08/10/tesla-does-not-
lose-4000-...](http://www.autoblog.com/2015/08/10/tesla-does-not-
lose-4000-each-model-s/) explains where the figure comes from. It is one
quarter's operating loss divided by the number of cars sold. However said
quarter also had an unknown but large capital expenses for things like ramping
up production for future models. So you can't actually get to the figure of
how much Tesla is going to make per Model S sold. (Nor would Tesla want to
release that figure.)

Other items I already knew to be disingenuous. I've been in a Tesla
dealership. The capital expenses are nothing like the rest of the auto
industry. Tesla doesn't have the capital risk of a bunch of inventory on hand.
They just have a couple of demonstration models, and a browser where you can
customize your order on your website. They only build the car after you buy
it.

Indeed, the whole company is structured around reducing expenses. When
batteries become cheap enough, Tesla will be perfectly positioned to sell mass
consumer cars. Their challenge until then is to build their brand,
distribution network, and capabilities so that they are positioned to
capitalize on the opportunity.

~~~
mdasen
That article is completely different from the little I know of accounting.
Operating profit/loss is in relation to operating expenses, not capital
expenses. The article cites a lot of capital expenses as dragging down
operating profit which makes little sense.

Operating profit/loss is revenue minus operating expenses. Net profit/loss
takes into account the capital expenses.

[http://www.investopedia.com/ask/answers/112814/whats-
differe...](http://www.investopedia.com/ask/answers/112814/whats-difference-
between-capital-expenditures-capex-and-operational-expenditures-opex.asp)

If the article you linked were credible, Tesla "lost" $47M as an operating
loss, but had $831M in capex in the first half so they were clearly profitable
when you add that back in. But what measure would that be? Operating
profit/loss should already have the capex taken out of it, right?

Yes, it's important to note that Tesla is starting up and has a lot of capex.
But capital expenses shouldn't be in the operating loss.

[http://www.diffen.com/difference/Capex_vs_Opex](http://www.diffen.com/difference/Capex_vs_Opex)

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programminggeek
This article seems like a traditional car company exec looking at a different
car company concept only to say "it will never work because it's just not how
car companies operate."

The same thing was said about Apple. Same things said about Uber. Same things
said about many successful ventures.

When you are trying to do something different, asking people who want to do
the same old thing what to do is a bit foolish. They are playing different
strategies or maybe a totally different game.

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tsotha
It was inevitable. Tesla was, for a long time, over-hyped. Now the pendulum is
swinging back the other way, and every little thing that goes wrong will get
national attention.

I'd be very surprised if Tesla was "doomed".

------
mtanski
According to Bob Lutz having car dealerships is a pro. LOL, I am yet to talk
to anybody who actually enjoyed the car dealership experience weather it's
buying or servicing the car.

The whole car dealer enterprise is a rent seeking business. In many states you
cannot have the manufacture sell the cars directly. That's changing slowly --
thanks to Tesla -- the dealer lobby is a big contributor in many local and
state wide elections. The pricing for the automobile / features is not clear
to begin with. It's to the point that there's many competing business that try
to give you true car pricing. And, every step of the way the dealership tries
to extract another fee / charge for you via various tactics like destination
fees, myriad of financing fees, unneeded insurance (tire insurance, ones that
overlap with the manufactures warranty).

Personally, I would love if the dealership model died. The alternative being
ordering a car online and having it show up at home at a scheduled time. I
imagine the same experience can be replicated the other way when the car needs
servicing, schedule it online and have it picked up / drop it off and a point
of aggregation of the car maker where they handle volume.

And before you tell me about the test drive and getting a feel for the car.
Meh. Your fooling yourself if you think that a 15 minute test ride will tell
you much about the cars performance, comfort or even layout. You will only
learn that the seats are uncomfortable on a 3 hour trip once you take that 3
hour trip. If a test drive is really important to you, you should really rent
the car for a couple days.

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justin66
Do his factual claims get any better after the opening sentence where he
mentions "mounting inventory?"

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sokoloff
BL> Would an internal-combustion engine dilute the Tesla brand? Maybe, but
everyone said Porsche could never build a front-engine car, and look how that
turned out.

What front-engine Porsche car was a major success? The Cayenne saved the
company, but is surely not a car and arguably barely a Porsche.

Seems odd that he wouldn't use "water-cooled" as the Porsche Rubicon.

~~~
smt88
An engine wouldn't dilute the Tesla brand necessarily, but it wouldn't make
any sense. Tesla's laser focus is a good thing.

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mdasen
The auto industry is a hard one to crack. Lots of ventures have failed even
with state support from various countries. Tesla has done amazingly well as
auto makers go.

I think one of the key points is that "there's never been any secret sauce to
the company's battery technology". Tesla very admirably opened up its patents
to competitors. Musk seems to want competition in the electric market. It
almost seems like he cares more about proving the viability of electric cars
than proving that Tesla can be a profitable, multi-billion dollar company.

When you're selling a unique product that appeals to a certain subset of the
population that other products don't appeal to, it's easy to get those early
sales. People who believe in Tesla will forgive not having a local dealership
with repair shop. They'll forgive faults in the vehicle. They'll forgive a
high price that can't be negotiated down. They'll forgive trade-in prices that
are probably lower since Tesla doesn't have dealerships to resell the vehicles
and probably just sends them to auction.

As they try to reach more customers, there are many things that cost money
that they'd have to go for. And maybe it would work.

However, I think if electric cars catch on, it won't be hard for other
companies to follow suit. I think a lot of companies just don't want to pour
money into a very expensive battery that will make a vehicle unprofitable. If
the economics change, other automakers will follow suit and there's little to
no barrier to entry.

None of this is to say that I think Tesla is doomed. It's more to say that I
don't think Tesla is going to become one of the top 5 auto makers in the
world. In fact, it's unlikely that Tesla will break the top 15 (Mazda sitting
at #15). And if it doesn't break the top 15, is it really worth $27B? Mazda
comes in at around $11.6B with very healthy profits and a full line of
vehicles with dealerships around the world. I think Tesla would be incredibly
successful if it sold 1.3M cars in a year. As of 2Q2015, Tesla had sold fewer
than 12,000 Model S vehicles in total - ever, not just for that quarter.

So, I think it's possible that Tesla will become a Mazda. But if it becomes a
Mazda, it's worth a lot less than $27B. And what are the chances that Tesla
will become a Mazda? Even if one thinks Tesla is a great concept led by great
people with a great product, the odds are bad that Tesla will gain the market
traction that Mazda has.

I think there's a middle-ground where one can say that Tesla isn't a joke or
doomed or anything like that, but it's really hard to justify such a sky-high
validation. There's no barrier to entry that software companies have. There's
no network effect they'll exploit to make a quasi-monopoly. And there's
serious competition. Competition that ships a lot more volume and can probably
move into electrics the moment Tesla shows them the market and economics are
right for it. That doesn't doom Tesla. It does make it unlikely they'll become
so big and profitable.

But that also doesn't mean that Tesla won't have a big impact on our society.
At the very least, it's pushing the conversation about electrics forward and
showing us a vision. It might not be a vision for everyone. It might be a
vision for the elites for now. But it's daring and interesting and there's
something worthwhile about that - especially so for Musk. It just might never
be worth its current market cap.

~~~
r_sreeram
> As of 2Q2015, Tesla had sold fewer than 12,000 Model S vehicles in total -
> ever, not just for that quarter.

Do you have a citation? The number I see is over 90,000. It includes Q3 of
2015, but clearly Tesla didn't sell over 78,000 units in that quarter alone.

The 90k number is from [http://www.hybridcars.com/tesla-model-s-is-americas-
best-sel...](http://www.hybridcars.com/tesla-model-s-is-americas-best-selling-
plug-in-car-this-year/) which is linked from the intro of
[https://en.wikipedia.org/wiki/Tesla_Model_S](https://en.wikipedia.org/wiki/Tesla_Model_S).

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chambo622
Betteridge's law of headlines applies here.

~~~
okigan
Most people would benefit from definitions:
[https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...](https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines)

But otherwise the article is a bunch of baseless claims and stays amazingly
useless. Also manages to hide the author's name, probably too ashamed.

~~~
protomyth
The author's name is listed twice at the top of the article.

~~~
okigan
Hmm, the subtitle "Bob Lutz thinks the writing is on the wall for the EV
maker." looked like an editorial sub-title not identification of the author.

But, I do see "by Bob Lutz" to the top left now -- odd.

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stephenitis
This is a fear mongering story with very little fact to back up opinion.

"The idea was, like Tesla, to be in control of the retail environment and give
customers an upscale experience. They were all money pits."

"Stockholders may be clinging to the hope that the company's upcoming
crossover will help put Tesla back on track, but there's little evidence to
bolster that optimism. A big, expensive vehicle with a compromised structure
to accommodate gullwing doors can hardly be a sales knockout."

0/10

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sea2summit
Lutz is right about cost cutting. The Model X is a boondoggle; even Musk
admitted they over engineered it, and they should have made the rear doors
optional for those who want a roof rack.

A huge benefit of ev's was supposed to be the cost savings in using a single
platform with multiple bodies. The Model S already had an all wheel drive
platform, so I don't understand why Musk wouldn't take advantage of that with
the Model X. IMHO that was a huge, huge mistake that's going to cost
shareholders a ton of money.

~~~
OrwellianChild
Not sure what you mean - the Model S and Model X _do_ share the same platform.

~~~
sea2summit
According to Wikipedia the Model S only shares 30% of it's parts with the
Model X.

[https://en.wikipedia.org/wiki/Tesla_Model_X#Specifications](https://en.wikipedia.org/wiki/Tesla_Model_X#Specifications)

~~~
OrwellianChild
...and its platform.

 _The Model X shares a platform and motor with the Model S, which is made at
the same factory._ [1]

[1]
[http://www.bostonherald.com/news/national/2015/09/teslas_fir...](http://www.bostonherald.com/news/national/2015/09/teslas_first_suv_the_model_x_is_finally_hitting_the_road)

~~~
sea2summit
30% shared parts doesn't sound like a shared platform.

