Tesla could be profitable if it wanted to

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A common criticism of Tesla Motors is that it loses quite a bit of money per vehicle sold.

From time to time, bears will cite a figure of how many thousands of dollars Tesla loses per vehicle, but those figures are misleading. They invariably refer to Tesla's operating or net loss divided by vehicle deliveries. For reference, Tesla's operating loss per vehicle last quarter was just under $15,000. The subsequent bear argument that inevitably follows is that if Tesla can't make money on luxury vehicles, which is an incredibly profitable market segment, then the Model 3 will only accelerate losses and cash burn.

But Tesla could probably become profitable right now if it wanted to. Here's how.



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The reason why those attention-grabbing figures are misleading is that they include operating expenses, which includes all of the investments that the company is making to fund future growth. That includes R&D, design, and engineering expenses, as well as massive amounts of capital expenditures to build product tooling and manufacturing infrastructure.

Tesla's gross margin is actually quite impressive and higher than rivals Ford and General Motors, specifically because Tesla only plays in the niche luxury segment right now. On a gross profit basis, Tesla made over $18,000 per vehicle last year. The operating margin is where Tesla lags, which should expectedly persist as Tesla remains in growth mode.



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As a percentage of sales, Tesla's operating expenses are significantly higher than traditional rivals specifically because it is funding growth, while developing a fundamentally different type of propulsion technology.

Theoretically, let's say that Tesla resigned itself to being a niche player in the profitable market for luxury vehicles. Assume Tesla decided that it didn't want to grow to hit its 500,000 annual production target, and brought all of its operating expenses in line to simply maintain existing volume levels.

Oh, and ditching the Model 3 plans would also render the Gigafactory unnecessary, since the Gigafactory's primary purpose is for Model 3 volumes and battery cost reductions. Model S is already fairly profitable on a gross basis, and the existing trajectories of battery cost reductions and improved energy densities would already help Model S margins improve.


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If Tesla did all of this, I have no doubt that it could quickly achieve profitability. Assume that Tesla could realize percentage figures comparable to its larger rivals if it abandoned Model 3. If R&D were 5% of auto sales and SG&A were 10% of auto sales, Tesla could have hypothetically posted operating income of $4.2 billion last year from just auto sales.

But that's not the plan. It's never been the plan. Model 3 has always been the end goal: an affordable EV with sufficient performance to satisfy mainstream consumers. Even the incumbent OEMs will burn through incredible amounts of capital to get there. They just have large existing businesses to help subsidize that development. Tesla doesn't have that luxury, so it's funding the path to Model 3 with luxury vehicles, with a dash of external capital raises on the side (which should be over by now).

Tesla has no intention of abandoning its Model 3 growth plans. So yeah, it's going to be pretty expensive and unprofitable for a while on a GAAP basis. Get used to it.



http://www.fool.com/investing/general/20...ce=yahoo-2-news


It is very normal for a growing company to report quarterly lost many many years, just look at one of the most successful company of the last 15 years: AMAZON. They growth like crazy every year for almost ever, even their revenue increased every quarter but they rarely reported any profit for a full year of the last 15 years. Did Amazon lost money on every item they sold ? No they didn't, they lost money because they funded the expanding into new services, new products ...


Disclosure: Author of this article owns shares of Tesla Motors, also Motley Fool owns shares and recommends Tesla Motors.
 
Any specific reason you are posting this here? Are you trying to convince yourself or are you trying to convince others?
 
A smart business always tries to not make money. It's much cheaper to invest in your self than pay taxes. I'm not referring to Tesla specifically though. I did have a tour at the space x center, it was pretty cool!
 
I knew a while ago that Tesla had some gross profit on model S, but they reported quarterly lost because of expenses.

But many just look at financial reports(operating margin) and declare that they lost money on every car they sold.
 
Amazon is not in any way related to Tesla in the way they do business. Comparing them is just another way to justify the losses. The auto industry is a capital intensive industry requiring constant investment in new models, not just R&D but also tooling. An auto company that is not investing in the future will die. Due to the Super competitive nature of this business anyone who isn't doing what Tesla is doing today will not make it. The money Tesla is investing is nothing special. They are one model failure away from bankruptcy. GM beat them to the market with a low cost EV but everyone is still talking about Tesla.
 
You lost me at lose.

Swoopy styling on the Model S though. Quite popular amongst the fashionable set.

A real shame California has seen fit to the electric car loophole limits to AGI $250,000 for individuals,
$340,000 for heads of household and $500,000 for those filing jointly. Though on working class folk.
 
Any company in any industry faces the same problems when they are growing/expanding. Any public company be it Auto manufacture or online retail or transportation or any other type are in the same boat in reporting financial result each quarter: Revenue and expense. I used Amazon as an example of a growing company can report lost many quarters even with billions in revenue every month.

Many multi-billions dollar companies such as Fedex, Google, Facebook, Amazon ... didn't have any profit for first few years, especially companies with rapid growth.

If Tesla is actually lost money on every Model S it sold(negative gross margin) it would be filling chapter 7 last year, and their stock price should be pennies, not $200+.

Tesla stock took a beating the first 2 months of 2016 dropping from mid $200 to mid-high $100, after Chevy announced the EV Bolt. But it went back to $200+ now.
 
Originally Posted By: HTSS_TR

If Tesla is actually lost money on every Model S it sold(negative gross margin) it would be filling chapter 7 last year, and their stock price should be pennies, not $200+.

Tesla stock took a beating the first 2 months of 2016 dropping from mid $200 to mid-high $100, after Chevy announced the EV Bolt. But it went back to $200+ now.


Could be overvalued. A bubble that will pop! Investors are idiots, pumping up stock shares and dumping them, much cheating and rigging at the expense of the buisness. Heard mentality, obscene CEO pay, is why I hate publicly traded companies.
 
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Originally Posted By: HTSS_TR

If Tesla is actually lost money on every Model S it sold(negative gross margin) it would be filling chapter 7 last year, and their stock price should be pennies, not $200+.

Tesla stock took a beating the first 2 months of 2016 dropping from mid $200 to mid-high $100, after Chevy announced the EV Bolt. But it went back to $200+ now.

Originally Posted By: Vern_in_IL
Could be overvalued. A bubble that will pop! Investors are idiots, pumping up stock shares and dumping them, much cheating and rigging at the expense of the business. Heard mentality, obscene CEO pay, is why I hate publicly traded companies.

84% of Tesla stock are owned by Insiders and Institutions & Mutual Funds as of Dec 31, 2015.

% of Shares Held by All Insider and 5% Owners: 22%
% of Shares Held by Institutional & Mutual Fund Owners: 62%

Fidelity, T. Rowe Price, Vanguard ... each owns more than a million Tesla shares valued more than $200 million up to $1 billion (Fidelity Contrafund Inc).

Top Institutional Holders: FMR, LLC 13 million shares $3 billion, Baillie Gifford and Company 10 million shares $2.5 billion.

Are these big institutions and mutual fund companies too dumb to buy into Tesla hype ?


http://finance.yahoo.com/q/mh;_ylt=AwrSbho6YPhWCRgADCxXNyoA;_ylu=X3oDMTEycW4yNTgyBGNvbG8DZ3ExBHBvcwMzBHZ0aWQDQjE3MjRfMQRzZWMDc3I-?s=TSLA+Major+Holders
 
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The reason why those attention-grabbing figures are misleading is that they include operating expenses, which includes all of the investments that the company is making to fund future growth. That includes R&D, design, and engineering expenses, as well as massive amounts of capital expenditures to build product tooling and manufacturing infrastructure.


As if every single automaker doesn't have these exact same expenses?

Imagine if Toyota stopped all spending on R&D, engineering, and design, then they stopped building any new plants or retooling existing plants. All they'd have is sales, service, and marketing running, selling their current lineup. Their profit would be HUGE.

Every automaker spends a boatload on engineering, R&D, and design. They all have to retool plants. You can't be an automaker and *not* do this. Using it as an argument for why Tesla isn't turning a profit is ridiculous.

That's like saying, "I'd be totally rich if I didn't have to pay for housing, food, or a car!" You'd only be homeless, hungry, and your feet would be sore.
 
I think the argument is that it's a company that is making capital expenditures now in preparation for future expansion. It's not so much worried about immediate quarterly profits as long-term viability. As someone famous once said, "Ya gotta spend money to make money."

And, less net profit because the gross is plowed back into expanding the business (minus enough to live on) isn't always a bad thing.
 
Tesla is not doing anything the other automakers aren't. Their spend to grow is just the cost of doing business that all the other automakers have to do all the time.
 
Originally Posted By: sciphi
I think the argument is that it's a company that is making capital expenditures now in preparation for future expansion. It's not so much worried about immediate quarterly profits as long-term viability. As someone famous once said, "Ya gotta spend money to make money."

And, less net profit because the gross is plowed back into expanding the business (minus enough to live on) isn't always a bad thing.


It doesn't matter what the argument is... BITOG'ers are going to hate on Tesla no matter what. HTSS_TR could post up that they figured out how to turn lead into gold and most members here would just [censored] that they are driving the price of gold down by flooding the market...

I tend to believe the articles- with all the big business investors involved, there HAS to be legit figures and the ability to prove their worth, or that plug would get pulled so fast it'd make your head spin.
 
Originally Posted By: MrHorspwer
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The reason why those attention-grabbing figures are misleading is that they include operating expenses, which includes all of the investments that the company is making to fund future growth[/u]. That includes R&D, design, and engineering expenses, as well as massive amounts of capital expenditures to build product tooling and manufacturing infrastructure.

As if every single automaker doesn't have these exact same expenses?

Imagine if Toyota stopped all spending on R&D, engineering, and design, then they stopped building any new plants or retooling existing plants. All they'd have is sales, service, and marketing running, selling their current lineup. Their profit would be HUGE.

Every automaker spends a boatload on engineering, R&D, and design. They all have to retool plants. You can't be an automaker and *not* do this. Using it as an argument for why Tesla isn't turning a profit is ridiculous.

That's like saying, "I'd be totally rich if I didn't have to pay for housing, food, or a car!" You'd only be homeless, hungry, and your feet would be sore.

Some of you guys don't understand the position of Tesla compares with all other established car companies.

Auto business requires a lot of cash fore sure, but established companies like Toyota, GM, Ford ... are already had every equipment on hand, what they are spending is up keep only and some slight improvements, they may increase volume by 1-2% or at most 5-10% a year.

Tesla is a new company, 2014 they made about 30k cars, last year they made 50k cars an increase of about 60%, they plan to make 90-100k cars in 2016 another increase of 60%, and 500k cars by 2020, an increase of 1500% from 2014. Any established car company plan to increase production more than 50% from 2014 to 2020?

Capital spending to increase volume by 60% a year is a lot more than 1-2%. Also, Tesla prepare for the future by building giga-factory in Nevada with Panasonic in the tune of $5 billions, this kind of spending is not usual with all car companies.

It is very clear that the expense of a new growing/expanding company with very low sale volume is much higher than an established company.

No, I'm not defending Tesla the way they run their business. But I just like to point out that just like every new company, they may report many quarterly lost but that is not unusual, and just take the bottom line divided it by the number of cars they sold and said this is the lost per car is totally wrong.
 
Originally Posted By: The_Eric
It doesn't matter what the argument is... BITOG'ers are going to hate on Tesla no matter what. HTSS_TR could post up that they figured out how to turn lead into gold and most members here would just [censored] that they are driving the price of gold down by flooding the market...


Based on his every-other-day posts about Tesla, I'm pretty sure HTSS_TR really does think they're turning lead into gold.

Don't misunderstand hate for failing to sop up every word that comes from a Tesla press release or Musk's twitter feed. We live in an era where some people respond to something new by becoming a zealot. Most of us aren't zealots. That doesn't make us haters.

Originally Posted By: The_Eric
I tend to believe the articles- with all the big business investors involved, there HAS to be legit figures and the ability to prove their worth, or that plug would get pulled so fast it'd make your head spin.


"Tesla could be profitable if it wanted to" isn't the point. Statements like that are fanboy fodder. The point of the article, which is also why investors haven't given up on Tesla, is that they are currently the great white hope in an industry that is stagnant.

Contrast that to GM. GM is doing great financially. They have shored up their position coming out of bankruptcy and are well prepared too weather another downturn. In the mean time, they're also prepped to make the most of the current boom. Yeah, their margins need some work, but they're trending in the right direction. Why hasn't their stock priced moved to reflect this? Because they're in the same boat as every other automaker: The industry as a whole isn't going anywhere fast.

Tesla has the opportunity to make an inroad to a capital intensive manufacturing industry that hasn't had a serious new player since the '60s. Lots of investors will bet on that type of potential in a stagnant industry. They're in it because there is the potential to make money, not because they believe in Elon Musk's grand vision of future automobiles and transportation. Investors aren't fanboys and they don't read press releases.
 
Originally Posted By: HTSS_TR

Some of you guys don't understand the position of Tesla compares with all other established car companies.


Except we do.

Originally Posted By: HTSS_TR

Tesla is a new company, 2014 they made about 30k cars, last year they made 50k cars an increase of about 60%, they plan to make 90-100k cars in 2016 another increase of 60%, and 500k cars by 2020, an increase of 1500% from 2014. Any established car company plan to increase production more than 50% from 2014 to 2020?


This is an implausible scenario. 1500% growth in an industry that will be shrinking by 2020? 500K EV sales in 6 years from a market that has shown minimal uptick in demand?

I'm not being a hater, I'm being a realist. Quote me on this and follow up in 2020: It won't have happened. Where are the sales coming from? If the industry is stagnant or shrinking, where will the volume come from? Considering a big chunk of the US industry is pickups, that's a huge percentage Tesla can't touch. They have no growth plan for emerging markets. Their plans in China have gone nowhere. That pretty much means Tesla will have to steal sales away from established automakers in the US. Stealing 400K units in 6 years just isn't going to happen.

But that's ok! The proposed scenario is the fanboy's wet dream. It's not what's keeping investors on the hook. *Any* growth in a shrinking industry is enough to keep the interest of investors and that's why they're still in. If Tesla can grow, even little nibbles, and they're not bleeding cash, they'll have investors.
 
Originally Posted By: MrHorspwer
Originally Posted By: HTSS_TR

Some of you guys don't understand the position of Tesla compares with all other established car companies.


Except we do.

Originally Posted By: HTSS_TR

Tesla is a new company, 2014 they made about 30k cars, last year they made 50k cars an increase of about 60%, they plan to make 90-100k cars in 2016 another increase of 60%, and 500k cars by 2020, an increase of 1500% from 2014. Any established car company plan to increase production more than 50% from 2014 to 2020?


This is an implausible scenario. 1500% growth in an industry that will be shrinking by 2020? 500K EV sales in 6 years from a market that has shown minimal uptick in demand?

I'm not being a hater, I'm being a realist. Quote me on this and follow up in 2020: It won't have happened. Where are the sales coming from? If the industry is stagnant or shrinking, where will the volume come from? Considering a big chunk of the US industry is pickups, that's a huge percentage Tesla can't touch. They have no growth plan for emerging markets. Their plans in China have gone nowhere. That pretty much means Tesla will have to steal sales away from established automakers in the US. Stealing 400K units in 6 years just isn't going to happen.

But that's ok! The proposed scenario is the fanboy's wet dream. It's not what's keeping investors on the hook. *Any* growth in a shrinking industry is enough to keep the interest of investors and that's why they're still in. If Tesla can grow, even little nibbles, and they're not bleeding cash, they'll have investors.

I posted clearly "they plan to make 90-100k cars in 2016 another increase of 60%, and 500k cars by 2020", and that why they spent a lot more as a percentage of revenue to meet that plan, from 30,000 cars in 2014 to 500,000 cars in 2020. They may meet(or miss) their plan, we don't know yet.

One fact: Tesla Model S is the best selling Luxury sedan in US in 2015, better than MB S-class, BMW 7 Series, Audi A8 ...

Tesla is stealing sale from established luxury brands with Model S, they may be able to do the same with Model 3, stealing sale from everyone.

What I'm trying to say here is no other established car company is spending money the way Tesla is doing now, because they are in expanding/growing mode, they need to pay for everything that other companies already had.

Any car company is building $5 billions giga-factory like Tesla is doing it in Nevada ?

The earliest date we will see how consumers welcome Tesla newest offering is this Mar 31th when they start to accept deposit for Model 3 with expected delivery date early 2018. Some posted on internet that it can be as much as 100,000 deposits within 24 hours of stores opening and online reservation at 8:30 PM PDT March 31th.

I think they may get 40-60k signed up worldwide and deposit $1,000/ea and wait approximately 2 years or longer to pay for the car.

http://www.hybridcars.com/tesla-model-3-...st-immediately/

Yes, I do love and support Tesla auto company. A new American car company with factories in US employing American workers, producing cars and export some of it to some countries oversea, China included. Do GM and Ford and Chrysler have any car made in US and export to China or any other country ?

Another point: Tesla paid off the Federal loan they had 6-7 years ago with interest more than a year ago, did GM paid off their multi-billions loan plus interest to Federal Government ? or the Federal Government lost billions with GM ?

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Unless GM's stock price goes way up, and soon, the amount of money ultimately recouped by the Treasury is likely to fall short of that $49.5 billion -- probably about $12 billion short.


http://www.fool.com/investing/general/2013/03/23/why-government-motors-still-owes-you.aspx
 
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