
Tesla may need cash to deliver on the Model 3: Analysts - protomyth
http://www.cnbc.com/2016/04/03/tesla-may-need-cash-to-deliver-on-the-model-3-analysts.html
======
Sam_Odio
The article itself (despite the sensationalist title) is not extremely
insightful - investors aren't expecting an auto-manufacturing startup to be
cash-flow positive while quickly scaling production.

In addition the content at times even contradicts the title...

 _" RBC analyst Joseph Spak, who has a $180 price target, said strong initial
orders for the Model 3 could help Tesla achieve positive free cash flow"_

...

 _" In February, the company said it expected to be cash-flow positive in
March."_

A more accurate title might be: "High Model 3 demand poses growth challenges
and an increased need for capital."

~~~
ams6110
Preorders are also not binding. Depending how long it takes, impatient
customers or those who need a new car sooner could look at alternatives.

 _By the time the Model 3 goes into production, it could face stiff
competition from several entrants._

The Model 3 might not have a lot of competition today, but it likely will in a
few years time and it remains to be seen how many of the preorder customers
will stick with their decision if/when other choices are available.

~~~
aerovistae
This has always been the most laughable thing for me. Stiff competition.

As if anyone is likely to come up with a car this compelling in the same time
frame. Like some mass-produced awesome car is just going to appear out of
nowhere. Yes, the big manufacturers have some things like the Bolt in the
works. Have you seen it? It's pretty meh. You wouldn't expect any of them to
rack up hundreds of thousands of pre-orders before anyone's even gotten their
hands on the car in person, non-binding or not.

Yet somehow all these internet analysts seem to think somehow all this
incredible passion for the Model 3 will just magically fade away in favor of
the exceptionally meh cars released by Chevy and Nissan and others. That's
just not how things work. People have waited 12 years for this, you don't
think they can wait two more?

I swear to god, even after Tesla is selling 10 million cars per year, you're
still going to have people sitting here saying "But can they keep it going?
Here comes the Tesla-killer~"

Extreme analogy, I know, but reminds me of Holocaust denialism. Some people
are just _determined_ to see past all available evidence to focus on one
outcome which suits their personal biases.

~~~
sergers
"Extreme analogy, I know, but reminds me of Holocaust denialism. Some people
are just determined to see past all available evidence to focus on one outcome
which suits their personal biases."

-very extreme analogy to the say the least, seems someone else here has a strong personal bias to use a crazy analogy.

its great that you believe in a company strongly, but to downright shoot down
any other possibility is bias.

personally not ordering model 3 as: -dont want to be driving first iteration

-contrary to your comment, alot can happen in 2 years.

-i dont think they can meet demand, probably 2-3 years realistic

-i will likely be in a comfortable spot (hope) to afford Model S by end of 2017

-too much unknowns for Model 3

~~~
aerovistae
A lot can happen in 2 years indeed. Can't wait to see what Tesla and SpaceX
have accomplished by then. It's going to be nuts.

I am indeed biased: I focus on available evidence. That's my bias. And all
available evidence screams that Elon Musk's companies succeed at the things
they set out to accomplish.

~~~
cmurf
I guess it depends on how you define success. Certainly it includes the word,
eventually, because it's not ever happening on the 1st, 2nd, or 3rd expected
by date. The analysts do tend to be conservative but they're also advising on
a lot more than $1000 buy-ins, so a lot of their hesitation is completely
legitimate "show me the goods". Investing isn't exactly like gambling on
chance you know?

------
pavlov
_Barclays analyst Brian Johnson, with a bearish $165 price target, believes
the surge of Model 3 reservations - each accompanied by a refundable $1,000
deposit - could reach 300,000 by the end of June._

Heh. Elon Musk tweeted earlier today that they already had 276k reservations
by the end of Saturday. So Tesla may reach this analyst's "end of June" target
tonight.

~~~
aerovistae
These analysts always make me laugh. Their "insights" are just random guesses
picked out of a hat. "Maybe THIS will happen! Then again, maybe it won't!" And
they're proved wrong, over and over and over, but they keep at it. What are
their credentials? Why are these people writing headlines?

~~~
nerdy
Analysts, meteorologists, and software estimates are mostly well-meaning but
never to be completely trusted.

~~~
mschuster91
At least meteorology is based upon solid, "predictable" science instead of
buzzword bingo speak from stock analysts and 90% of IT consultants ;)

~~~
jsjohnst
while I get and agree with your point, I find many meteorologists have about
the same accuracy of prediction as the other two groups.

~~~
fgonzag
Most meteorologists gather their data from the same place, the National
Weather Service. All they do is basically create pretty charts around it and
put on a suit.

------
CapitalistCartr
Like Tesla will have any trouble raising cash. Too many people would line up
to throw cash at them. They're the new Apple.

~~~
wmeredith
I had the same thought. Serious question: why WOULDN'T you give this company
money?

~~~
chx
There's always risk. The biggest risk I can think of is a battery invention
completely disrupting the industry and making the Gigafactory obsolete. Losing
a few billion dollars (I am not sure how much Panasonic invests of the
reported 5B figure) would be a gigantic blow. Now, how likely such a thing is?
Beyond the bombastic media reports, not at all likely but it exists. There are
quite a few companies and university teams chasing this particular Holy Grail.

For example, Graphenano claims they will ship graphene batteries this year.

~~~
aerovistae
This entire comment makes less sense than a llama driving a taxi.

This "biggest risk" you've named is....entirely fantastical. A battery
invention making the Gigafactory obsolete? What?

1\. What kind of invention are we talking here? A new battery that stores
100,000mi per charge, is lightweight (magically), and charges in 10 seconds?
Great, then the Gigafactory can start manufacturing that instead. It wouldn't
be obsolete.

2\. Even if such a thing as #1 were invented, great, now Tesla's product is
infinitely more compelling. They'll sell that many more cars. The car now has
enormous range and charges very quickly. This is a _bad_ thing? What??

3\. Even if #1 were invented and somehow intellectual property'd out of
Tesla's reach, how's it going to hurt them? Are we imagining one of their
competitors magically coming up with this, and conjuring an equally compelling
but superior car out of thin air, using technology Tesla has no access to?
That's an incredible turnaround time, this new tech being revealed AND
reaching mass production AND having a car designed around it which ALSO
reaches mass production...all before 2017. Incredible! Unheard of!

4\. #1 is a joke. That won't happen, can't happen, has never happened. New
revolutionary hardware technologies don't just _appear_. They gradually work
their way into society, and it takes a lot of time before methods are found to
cheaply mass produce new hardware technologies.

Given that your "biggest risk" is an absurdist fantasy, I think we can safely
say Tesla's in a good position!

~~~
mschuster91
> Great, then the Gigafactory can start manufacturing that instead. It
> wouldn't be obsolete.

The Gigafactory IIRC has a $5B budget. The building and the land isn't
expensive, especially given the preferential treatment by the government. The
machinery and infrastructure, tailored for lithium battery production, are the
biggest part of the budget and you won't be able to "just switch it out". The
Gigafactory is a lithium battery factory on a massive scale, nothing else.

> New revolutionary hardware technologies don't just appear

Do you remember the revolution that got sparked by the iPhone? That one needed
half a year to totally turn over the mobile phone market. It's not uncommon.

On the other hand, I agree that a revolutionary new technology is unlikely to
appear - and with the Gigafactory, Tesla and Panasonic can basically control
battery prices for the rest of the world.

~~~
wtallis
The iPhone was a revolution in product design, but its hardware was all off-
the-shelf technology. There was no fundamental hardware invention like new
battery technology. The iPhone's most radical departure from existing
smartphones was its use of a capacitive multitouch display, but Apple got that
tech from a startup they acquired in 2005 that had been founded in 1998 by
academics who had been researching uses for multitouch. So that revolutionary
advance was brewing for more than a decade.

~~~
unusximmortalis
what was/is distinguishing apple products from the rest, many years (even now
I think), is the battery life; and that was also in part because the software
developed for iOS was tested and maintained and designed to consume as less
possible processor cycles; there was special attention given to this aspect (I
am not sure if they are still doing it, but I know they were doing it in the
past), which the rest I never heard of doing it.

------
xiphias
Sure, it probably won't get profitable, as Tesla expected less preorders.
Investors don't have a problem with that.

The only thing that matters now is whether Tesla can build a great car
profitably and cheaply in high amount, not cash-flow.

~~~
mtgx
I think all of Tesla's cars are profitable, and Model 3 will probably be even
more so thanks to all the software "upgrades" Tesla will likely charge for.

The "problem" is Tesla is trying to become the GM or VW of EVs before GM or VW
get a chance to use their massive cash cows to dominate the market. So they're
trying to cover the market with as many different models as their financials
allow them, as well as trying to build the SuperCharger infrastructure
globally. All of that R&D and infrastructure costs a lot of money and it has
to come from somewhere -> current cars' profits.

To make things even simpler to understand, Tesla will operate on an _Amazon_
model of not giving a damn about quarterly profits for the next decade or two,
while building the biggest (Tesla-only) fast-charger network in the world (
_huge_ competitive advantage) and at the same time trying to _grow_ as a
company as fast as possible and entrench itself in the car market as the Apple
of EVs.

Oh, and almost forgot about the whole Gigafactory thing. And one of those
isn't even going to be enough by 2020 (don't forget it also has to make
PowerWall batteries). That alone cost $5 billion and Tesla couldn't even build
it all itself (just goes to show how much money Tesla needs to _invest_ in its
future, not pay dividends or brag about its 30%+ profits every quarter).

~~~
ars
I suspect that they're going to run out of lithium (or at least run out of
affordable lithium) before they can accomplish this goal.

Electric cars are not the future, there just isn't enough lithium on earth to
do this. The US might be able to, but not worldwide.

Powerwall is definitely not ever going to get off the ground - cars are more
profitable, and they will never have enough extra supply to shunt some to
powerwall.

~~~
aerovistae
I feel like Elon Musk is generally well-informed and thinks pretty far into
the future.

While I don't know the answer myself, I am inclined to think that Elon's not
just planning on running the company straight into a widely foreseeable dead-
end. Seems unlikely, don't you think?

Like, imagine this interview:

Interviewer: What is your plan for when lithium reserves run out?

Elon: Wait, what? There's a limited supply? Hold on, need to google this.

Take 2:

Interviewer: What is your plan for when lithium reserves run out?

Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get
there.

(Has he EVER given an answer like that, politician-style? No. Never.)

Seems like a safe bet that this imagined problem has a solution which hasn't
been shared with us because nobody's asked him.

~~~
ars
> Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get
> there.

Why do you think this is wrong? He'll have many years to figure this out -
this is a longterm problem, not a short term one.

It's not like you can't do the math yourself on global extractable lithium
supply, and how many cars you can make with it.

I'm betting, not on new battery technology (any element except the big 10[0]
would run into the same problem), but rather on a new engine that can burn
very clean synthetic hydrocarbon fuel.

But if I did have to do research on battery tech today it would be on an
aluminum ion battery.

[0]
[https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth...](https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth's_crust)
[1] [https://en.wikipedia.org/wiki/Aluminium-
ion_battery](https://en.wikipedia.org/wiki/Aluminium-ion_battery)

~~~
tamana
Of someone discovered a clean synthetic CHEAP hydrocarbon fuel, they could
burn it and put it on the grid to feed electric cars.

~~~
ars
I know I said fuel, but it's not really a fuel. The synthetic hydrocarbon
would be energy storage. The energy source would be something else - nuclear
or solar thermal probably.

------
jordache
i wonder how their support/service model will scale to model 3's volume.

also curious to see if the model 3 will represent greater reliability for
their vehicles...

Current level of reliability + current service model @ model 3's volume ==
nightmarish owner experience.

~~~
cmurf
Including maintenance. Model S is $400 and $700 for the 1st and 2nd years. I
know of no mass market car in the ~$35k price range with such high
maintenance. Will the car get 10 years of software bug/security updates? 20
years? What sort of after market modifications will be allowed? Will 3rd party
maintenance be permitted?

~~~
gambiting
The worst thing is that Tesla can at any point decide your vehicle is no
longer fit for use and disable it completely. They already do that in case of
accidents - the car is completely disabled until you bring it to a Tesla
dealership where it has to pass their standards to be reactivated.

~~~
tamana
Ultimately that is an issue for car insurance and an extended Warranty form
Tesla.

~~~
cmurf
The extended warranty is 4 years after the included 4 years. That's 8 years.
There's presently no option beyond 8 years. At the moment, Tesla literally
owns the keys to the car in the form of activation, and at the moment there's
no way to know what 3rd party parts or repairs are acceptable. It's also
unknown what happens if a significant software problem is found after 8 years,
whether there will be a software upgrade service beyond 8 years and what that
will cost. In theory the car could cost less than a regular car, but a huge
part of the reason why specific traditional model cars end up being
inexpensively and safely maintained is the wide availability of service parts
and manuals. None of that is true yet for Tesla. That's workable for a unique
high end vehicle, I don't think it is for mass market.

------
alkonaut
Are there any plans for models after the Model3? Feels like we have been
waiting for the "affordable model" for years and now that it's here there are
no rumors for future models, correct?

I'd kill for a practical family wagon (I consider the Model X as being too
small and without good storage, and the S as being just too expensive). The
Model3 has nice looks, but it's pretty compact and it's a sedan so a complete
no go .

The VW GTE wagons are perfect but they are hybrids. I suppose they will be
fully electric soon, the question is how long it will take before VW and
others have a similar price for batteries as Tesla?

~~~
camwest
What do you mean? The Model X is bigger than the Model S and more expensive.

~~~
alkonaut
I haven't seen the Model X in the flesh yet, but I got the impression that
storage was only medium-crossover and not big-ass SUV volume (especially with
the lack of roof storage). I could be wrong though. But either way, as you
point out it's in the same price range as the S so it's way too expensive
anyway.

------
massemphasis
This seems smart, there doesn't seem to be too much wrong with opening the
door to investors. Once the investors start supporting the Tesla M3 and EV
entry luxury cars, they will be also interested in investing in the
infrastructure to support these kinds of solutions.

If sales and orders continue rising, and he requires investments, then he's
already hooked in investors. Tesla might just prove themselves to be the
gateway to a new infrastructure model.

------
kylehotchkiss
Would it be difficult to get venture debt with 10bil in prospective sales in
the pipeline?

