Bugatti burns VWAG's cash, loses more than $6.27 million on every Veyron sold.
This is actually true, but guess how many investors in VWAG actually cared? Not as many as you think. The Veyron was Ferdinand Piech's moonshot. It was the automotive Concorde. The physics involved are sort of nuts[1], especially when you consider it was developed in the late 90s and went into production over a decade ago. The R&D costs were ludicrous. They nearly burnt down the engine design building because the immense heat the engine spewed out on the test rig... yet still had to find ways to dissipate that much heat in actual use. It was considered an engineering and research exercise that could defray some of its costs.
This isn't much different. New automotive production line and models costing serious money up front? I'm going to die from a lack of surprise.
[1] Consider a valve stem cap. They're aluminum, and weigh ~1g. However at near 400kph, because of the centripetal force of the wheel, they effectively weigh 7.5kg at those speeds. They also had to redesign the schrader valves so they wouldn't deflate at those speeds. They also had to create new TPMS sensors because even Porsche's -- which were rated for around 350kph -- damn near disintegrated past 375kph.
7.5kgf centripetal force for a 1g mass just doesn't seem right. The math checks out though, and tells me that I'm unable to intuit the forces involved at 250+ Mph.
At that speed, the wheels are spinning at over 4,000 RPM. I wonder what machine is used to balance those wheels...
The headline is misleading ("loses more than $4000 on every car sold"). Tesla has a healthy gross margin of over 23% on each car sold (as of last quarter). They have quarterly losses because of expansion and investments into growth.
If they stopped expansion (stores, service centers, superchargers, equipment, etc) and investment into growth (new hires, new models, etc), then they could be profitable since that would lower their expenses and they could use their gross margin per car to fully cover expenses. However, since they see a huge market, they are foregoing current profit and investing all of that and more into expansion and growth. This is only to be expected of a high-growth company in its early stages of growth.
"Here’s how it worked. In April, Tesla started a new financing program under which customers have the option to sell their vehicles back to the company after three years for guaranteed minimum amounts. The accounting rules say Tesla can’t recognize all of the revenue immediately in those instances and must account for such transactions as leases. So after Tesla takes customers’ cash, it records liabilities for “deferred revenue” and “resale value guarantee” on its balance sheet."
They are a cool company, but figuring out how they are doing is non-trivial.
It'd probably be more clear to not use car sales as the divisor of an equation that doesn't involve losses related to actual cars, but if that's the one that HAS to be used, I think "loses more than $4,000 FOR every car sold" might be a little more accurate.
The headline uses the word "burn" and there's an unfair connotation of excess when you see it. Then internally the article uses the word "burn" for NORMAL expenses and investments.
I hate this headline. Unless I missed something in the article, $4000/car is the overall loss divided by the number of cars they produced. The headline implies a loss a per unit basis, or negative gross profit. The reality is they have massive capital expenditures that are reasonable to associate with an expanding manufacturer doing tons of R&D.
I recently got a peak at how the established car makers operate especially concerning their software development. The amount of engineering that goes into making things scale across brands, market-segmentation, configurations, countries and getting the thing produced in high quantities while putting an incredible amount of engineering resources into literally shaving even a single euro of costs is insane. Tesla doesn't have to do any of this, yet.
It's like a non-programmer looking at Twitter or even Google. How can this be hard? Isn't it doing the same job as Spotlight on your local computer? It's not! It's a much harder problem, primarily because of scaling, fighting with SEO, etc. We do understand this for software. The car business is more complicated than it looks.
"Tesla reports its finances in a different way from the Detroit automakers. Using the generally accepted accounting principles, or GAAP, used by GM or Ford, Tesla's operating losses per vehicle have steadily widened to $14,758 from $3,794 in the second quarter of 2014."
So by GAAP they are losing $14.7K/car. If I had money to speculate with I'd be shorting them, except this;
"Musk has steered Tesla out of tight corners before. In September 2012, the company faced a cash crunch, but raised money by selling shares and renegotiating the terms of a federal loan."
Tells me where the next round of "capital" is coming from when they get into trouble. Don't let anyone tell you we live under Capitalism.
I assume that you are referring to GM. That bailout was by no means cheap, but it wasn't 80 billion, either. According to Wikipedia:
> In total $51 billion taxpayer money has gone in the GM bailout.[90] Until December 10, 2013, the U. S. Treasury recovered $39 billion from selling its GM stake. The final cost of the GM bailout cost the U. S. taxpayer $12 billion ... [1]
I don't believe this affects your argument really, but I think it's important to try to keep the facts straight, especially about a subject as contentious (and I'd argue, significant) as the GM bailout.
So $12 billion to save 1.2 million jobs and $34.9 billion in annual tax revenue? Seems like a no brainer.
"According to a study by the Center for Automotive Research the GM bailout saved 1.2 million jobs and preserved $34.9 billion in tax revenue.[91]"
http://www.usatoday.com/story/money/cars/2013/12/09/governme...
How was it repaid if they're losing money? Sounds like their debt was simply restructured this year (they paid off the loan by just getting more financing.)
The point is that the government is taking on a risk by giving tesla a loan, because they're not profitable and it's not guaranteed they'll be able to find a greater fool in the next round of financing.
It was repaid through and equity round (people like me bought TSLA stock, and that money was used to pay the DOE back).
Frankly, I find your opinion grossly disingenuous. Tesla has pushed harder and faster than any other auto maker to electrify transportation. They're a phenomenal bet to make considering their existing track record of success.
Tesla is currently growing by about 50% year over year. That amount of growth alone would eat up most profits made on the car sales. On top of that they have the costs of the imminent launch of the Model X. And, in the next weeks they are going to open their 500th Supercharger site world-wide. No other car manufacturer is building up a charger network of that scale. Finally their Gigafactory is making good progress, supposedly going operational in 2016. So currently they intentionally burn through their cash reserves to strenghten their future business.
Sounds good to me - at the high end of the car market, adding an extra 4k is not a big move on the price elasticity curve, but as long as it's profitable at the margin, then spending 4k of capital to "buy" market share seems sensible.
I would not rush to sell tesla shares on this headline, and at least they seem to know where the car market is going.
This is actually true, but guess how many investors in VWAG actually cared? Not as many as you think. The Veyron was Ferdinand Piech's moonshot. It was the automotive Concorde. The physics involved are sort of nuts[1], especially when you consider it was developed in the late 90s and went into production over a decade ago. The R&D costs were ludicrous. They nearly burnt down the engine design building because the immense heat the engine spewed out on the test rig... yet still had to find ways to dissipate that much heat in actual use. It was considered an engineering and research exercise that could defray some of its costs.
This isn't much different. New automotive production line and models costing serious money up front? I'm going to die from a lack of surprise.
[1] Consider a valve stem cap. They're aluminum, and weigh ~1g. However at near 400kph, because of the centripetal force of the wheel, they effectively weigh 7.5kg at those speeds. They also had to redesign the schrader valves so they wouldn't deflate at those speeds. They also had to create new TPMS sensors because even Porsche's -- which were rated for around 350kph -- damn near disintegrated past 375kph.