I worked for a company that had a similar take on spending. The company was extremely profitable and brought in greater than 1 billion dollar in revenue. Yet any PO that was greater than $100 needed approval by the CEO. Not only that, the PO had to be typed on a manual typewriter (this is 2007) using carbon paper, and hand-delivered to a number of people to start moving up the chain. The process intentionally took MONTHS for the approval to go through.
This resulted in engineers that would purchase their own equipment and bringing it to work to use because they couldn't wait a month for a $200 piece of equipment. It was common to have lab benches full of used equipment from ebay that engineers purchased to get their jobs done. This created an interested dynamic in the lab when it came to sharing equipment (most of it was not shared). Also, scary to know that since a lot of used equipment was being relied on, a large portion was not calibrated and could be outside spec.
There is a lot of value in creating a thrifty company culture, but sometimes it goes too far and hinders the ability for engineers to do their job. In the end, everyone is responsible for ensuring the purchase they make are wise and necessary for the success of the company.
> This resulted in engineers that would purchase their own equipment and bringing it to work to use because they couldn't wait a month for a $200 piece of equipment.
That's a mistake. You should never pay other people's costs. If the company wants to put itself in a position where work is delayed by a month for the sake of $200 then that is the company's cost to pay.
It’s a mistake if the company is healthy. But if individual workers are in a position to get a performance bonus or impress their boss, it may be worth it for them to spend some money to ensure that would happen. It would also be a bad work environment.
It won't impress anyone. All it will do is incentivize them to see what else they can get out of you for free. They won't respect you if you don't respect yourself.
And yet if you don't get the job done due to slow company approval process you get the blame for it, and possibly at the cost of your Job. It is rather unfortunate that this isn't a minority but many of today's company, from SME to Fortune 500 operate in a similar fashion.
If $200 is the difference between being blamed for a late release, and being praised for doing a good job, I'll pay the $200.. and work to make that cash up in spades by negotiating it back from the company in the form of pay and position increases.
You're correct that the company should pay, but not everyone is willing to martyr their career over petty cash.
> I'll pay the $200.. and work to make that cash up in spades by negotiating it back from the company in the form of pay and position increases.
By paying the $200 you've already lost the negotiation. The work you should have done is to demand the resources to do the job the company claims it wants done.
$100 seems like a pretty extreme threshold. Would make more sense to have a budget for a group or an individual, then only require approval once the budget has been depleted (though I guess this could potentially incentivize overspending instead).
* 1000 to 10000 people making those $100 purchases maybe not too extreme? Said they posted over a billion so I’d guess pretty large number of employees
Usually cost cutting at a high-spend early stage company entering a mature phase doesn't usually meaning counting pennies at the expense account level.
High growth companies that rapidly expand as they try to penetrate the market and conduct plenty of R&D have lots of exploratory avenues and quickly-signed deals with partners that could easily result in cost saving without affecting the primary business model or the vast majority of workers.
This is different than an older company with zero growth potential trying to find more profitability by choking out their squeeze the pennies from an existing business in order to keep investors happy.
I had two cases like this in my career. The first one was a cost cutting initiative during which the managing director of the second largest production site signed POs for office material. At the same time procurement, strategic and operational, signed frame contracts and created POs against these worth millions for raw material and stuff like that on group level.
The second case was a company in which every single drop ship order from there customers had to be ordered individually from the dropshipper. Every such order had to created manually and needed managing director EMEA approval in writing.
My mind is blown! I've always associated Linear with precision work, can't believe it was all built on eBay equipment. Doesn't seem very Jim Williams...
Your link is to what is represented as the authentic text of the memo. If genuine, to me, this seem like the most important bit:
"It is important to bear in mind that we lost $700 million in the first quarter this year, which is over $200 million per month. Investors nonetheless were supportive of our efforts and agreed to give us $2.4 billion (our net proceeds) to show that we can be financially sustainable.
That is a lot of money, but actually only gives us approximately ten months at the first-quarter burn rate to achieve breakeven. It’s vital that we respect the faith investors have shown in Tesla, but it will require great effort to do so."
With relatively low gas prices at the moment, decreasing federal subsidies for electric cars, and more players entering the market, it seems like Tesla is in a pretty tough spot.
I’m not sure that gas prices matter all that much to Tesla though. Even with the low-end Model 3, it’s tough to save money over an efficient gas car. Tesla’s appeal is based more on their cars being fun, quick, quiet, clean, practical, and technologically sophisticated.
> With relatively low gas prices at the moment, decreasing federal subsidies for electric cars, and more players entering the market, it seems like Tesla is in a pretty tough spot.
Nothing you couldn't see coming 5 years ago, however.
If they would focus on building cars they might have been there but they are betting the farm on FSD and its that short term push that might end up hurting the most.
Plus as an owner, their priorities are just whack. Next update we get a Sentry icon on the main display and, wait for it, animation of rain on the car if its raining. I guess that is better than video games.
A Toyota Camry, scratch that, Corolla, can respond to more voice commands than my TM3 and best yet, you can select through blue tooth or USB the music play list you want to play, and more, all without having to use your phone which is illegal in most states.
So love the car but I have my doubts about Tesla's ability to focus on what is required instead of pissing away resources on Easter Eggs like fart noises; I wish I were kidding
I think you’re overestimating FSD current vs. sunk costs. They’re not betting the farm unless you mean the model 3 lease return but that can always change.
I question that CW. If that were true, the competitors would be making sporty sedans like Tesla. But almost none are. The competitors—the Bolt, Kona, etc., are all totally different form factors.
The alternative, potentially better, theory is that everyone is reacting to the same incentives and market structures. Governments are pushing electric vehicles through subsidies and mandates. Meanwhile, exploding use of portable electronics has led to massive improvements lithium ion battery technology. Tesla has targeted a flashy niche market, expensive sports sedans, but has largely avoided trying to compete in the markets where the sales really are: crossovers and SUVs. (Every year, Toyota sells as many RAV4s as all the vehicles Tesla has ever sold.)
The Model 3 and even the X can barely be considered expensive sport sedans. The first is a low end lux compact, the second is an expensive SUV or crossover. Only the model S is in that category.
In Beijing, I saw a lot of Model S’s on the road in the year before I left. These people would have been driving Audi A5+ or an S-class if it wasn’t for Beijing’s plate lottery (you can get a car quicker if it’s an EV). As far as that goes, the Model S is a good strategy outside of the USA where people aren’t so SUV crazed.
> Governments are pushing electric vehicles through subsidies and mandates
Specifically, isn't this because of CAFE[1]? Gas mileage compliance is calculated per manufacturer. So BMW can keep selling 17mpg M3s as long as they're selling enough of those i3s[2]
Any comment on whether it's a car that would last to 150,000 miles? I see a warranty of "guaranteed at least 70% capacity for 8 years or 100,000 miles".
This is my foundational fear of losing Tesla. Love them or hate them if they were to sink I feel the large drive to compete with them goes away and we go back to business as usual burning dead dinosaurs. While Tesla isn't perfect by any stretch I do think they continue to be very important to the overall market progression and higher expectations of auto manufacturers.
Is there really a large drive to compete with them? So far they have proven that unit profitability is difficult if not impossible with current tech.
And meanwhile, Ford is selling a quarter million F-150 trucks every quarter compared to Teslas total units per quarter around 40k. I don't think the big automakers are worried yet.
There is. Buyers of an F150 are not buyers of any Tesla product. Ford just invested heavily in Rivian [0]. That's Tesla's backyard for sure and is a departure from those buyers of the F150.
Self driving and electric cars have been in development for a long time. Mercedes Benz in the 1980s was testing automated driving on empty streets in Munich.
The difference between Tesla and others isn't that Tesla somehow was the first to come up with these ideas, they were the first to attempt to run a car company like a startup and marketing themselves as a disruptor.
Which in a sense is true because it brought the products to the forefront, but there's a reason that hadn't happened before, because a car manufacturer actually needs to make money on the existing markets. No use in pushing a good idea before the time is right.
>To be fair, the current competition is largely a reaction to Tesla's accomplishments.
Does it really matter?
Tesla is doomed. It’s run out of early adopters and its cool factor is diminishing. The last quarter’s results indicate that demand is down. Supply issues can be spun as a positive, but if demand is weakening...
Combine that with increased competition from a half dozen well established players and the writing is on the wall.
This ignores the fact that EVs are currently the only viable path towards road-based transport that is compatible with the continued existence of our species.
The transition isn't urgent due to oil prices. It's urgent due to greenhouse gases making the planet inhospitable for humans.
Musk has said that hydrogen is foolish. I can understand that angle, because the concussive blast from compressed hydrogen ignition would be more dangerous than a lithium fire.
But a hydrogen economy feels like it could work when scaled up. Somehow it feels practical as the most abundant element in the universe, with high energy density. Lithium/cobalt reserves are limited, though recycling measures might could solve that problem.
Platinum-group element coated electrodes powered by ~25 year life spans of cadmium/tellurium solar cells (or Perovskite, and many others I'm sure, but Cd/Te is the one I've deployed en masse personally) would allow for low maintenance hydrogen generation and a shift away from natural gas sourcing.
Nafion is necessary for the fuel cells themselves but I'm not sure about the production process behind that.
"less urgent" doesn't mean its not important at all. When we were constantly at the brink of war and supporting all kinds of terrible governments to secure stable access to oil and keep the petrodollar intact.. There was more pressure to quickly develop alternatives to oil.
Depends on where you live. If Vermont, more than 90% of their grid is powered by renewables and other non carbon sources like nuclear.
Not to mention that the equivalent mpg for a Tesla is 100mpg.
Add to that the fact that mass produced grid electricity is massively more efficient and clean than everyone generating energy themselves. (ala internal combustion engine).
It would be like saying that everyone having their own gas generator at home is just as bad as having a single gas power plant that powers the grid.
Sure, there are other sources of pollution like the batteries but "all in", electric cars are still significantly better for the environment.
Shit, that would mean, if read it correctly, that the 2.4 billion gave Tesla a runway of 10 months. Starting now. But that would mean that Tesla was almost bankrupt when the money was raised? Or do I interpret that completely wrong?
A bit later in the thread the poster also states a pretty good explanation:
> A lot of FUD from the media said Elon stated they will only have 10 months left before cash balance is zero. No where in this letter stated such a thing and Elon just used an arbitrary number(in this case the newly raised capital) to express the point that 2.4 billion may seem like a lot of money, but we shouldn't take it for granted. In fact their cash balance is most likely over 4 billion.
> This letter to me shows the maturity of a company. Elon is telling his team that just because I can raise 2.4 billion whenever I want doesn't mean money is falling from the sky. Everyone must continue to be vigilant about cost cutting, and we must prove to our investors that we will take cost cutting seriously.
> From Q1 conference call, Elon alluded that the reason why he is against raising capital all the time is because he wants to focus on cost cutting as the primary objective. So his letter does not seem anything out of the ordinary.
> So no, the sky is not falling.
So it sounds to me that Elon musk does not want Tesla to burn money like Uber. He says they most certainly could, but he would rather focus on cost cutting. This seems to be a very mature reaction, something every mature company does. This makes Tesla less and less like a startup and more like a mature company. Granted, they are not there yet but I believe they could be there very soon.
Elon Musk also always makes things “hardcore”, or more extreme then a normal company would do. Instead of cost cutting over years, he wants it done fast but might underestimate the time it actually takes to achieve his goal. We have seen that move from him many times, when a released the model 3, he gave a very very optimistic release timeline. While he missed it, it was still a lot faster then his original plan to release it in 2020 and still faster then a lot people estimated. While this doesn’t always work out (like his autopilot goals), by setting such hard goals and deadlines, things move much faster then they normally would. Only time can tell if his cost cutting plan actually works but he has shown that such extreme actions can often lead to much better results because everyone wakes up and doesn’t just put it on goals for the next 3 to 5 years list.
That being said, I am not really worried about Tesla. They have shown that they are able to get a lot more money if necessary and their demand is still going strong. The competition doesn’t look very promising (the audi E-Tron is often compared to the 2013 model S, and while it is most certainly superior in some aspects, I believe Tesla is still a few years ahead from the competition).
This is what's not clear, and a major risk factor for them. I think Musk views 35k as the inflection point where quantity demanded sky rockets and he's not been able to get there. Seems like a lot of decisions were made based on assuming that would happen by 2019.
The $35k model 3 does exist (well, $35.4k after last week's price bump). But it's a software limited version of the $40k SR+ model and it's not listed on the website and you have to talk to person to order it who will probably try to upsell you as if their job depended on it.
I"m not sure, but i think there was a lot of pent up demand for a high end electrical car, they're in the process of serving that demand globally, and then what? Do deliveries plateau or even drop? There's stories about it dropping already, at least for the models S and X.
> A lot of FUD from the media said Elon stated they will only have 10 months left before cash balance is zero. No where in this letter stated such a thing and Elon just used an arbitrary number(in this case the newly raised capital) to express the point that 2.4 billion may seem like a lot of money, but we shouldn't take it for granted. In fact their cash balance is most likely over 4 billion.
10 months is a weird number and frequency for someone to pull out of a hat arbitrarily, especially the CEO of a public company. Something that lined up with a quarter or a year, ok, but 10 months? Why not 3 quarters, or less than a year?
You get to 10 months when you have a monthly burn rate in mind and you divide that by your available cash and it says 10.
Yikes. It’s bizarre that they just now realize this and implement it. Reminds me of something a teenager would do at the last possible minute before something bad happens.
I didn’t read it like that. I read it more like... yes, we just got some money from investors but the drive for profitability is still a huge priority.
Irrespective of the technical merits, a significant portion of the HN user base likely invested in $TSLA years ago and are financially incentivized to support all of Musk's claims, even if they wouldn't support the outlandish claims normally.
Considering that a large portion of HN readers are technical and data driven, I would think/hope that they are not invested in individual stocks with any significant amount of their net worth and are instead taking the approach that the data bears out which is to invest in low fee index funds.
In the letter, Elon stated they have burned through over $200m/month this year after the cost reductions from last year and January and again in March. (That's net $200m lost each month, not $200m spent each month.)
They raised $2.4 billion a few weeks ago, about half of which must go toward servicing existing debt, and had about $900m in the bank before the offering, leaving them about $2.1billion in cash.
Or in other words, 10 months of cash based on the trend established by the first 3 months of the year if they do not either cut losses, dramatically increase sales, or both.
Context matters, as does reading comprehension. $200m/month = $600m/quarter...after 3 rounds of expense cutting.
That's $200m/month in net losses during a purely operational stage. It doesn't even include the costs of a planned Model Y launch or self-driving network.
The drop in S/X deliveries from the updates to their production lines, discontinuation of the 75kWh pack, and the pull-forward from Q4 of last year due to the reduction in the US tax credit also reduced profits by ~$300-400 million.
Like I said, a single data point doesn't make a trend.
A friend who worked on the charging system for the Model S reported that a few weeks before the vehicle shipped they were way behind schedule for building vehicles and falling further behind as the release date approached.
One Sunday morning the entire engineering team was on the manufacturing floor helping the struggling manufacturing team build vehicles and Elon appeared trailing a gaggle of execs. They started poking about and work started to grind to a halt. The engineering lead went over and asked what was up. Elon said that they were wanting to see first hand what was holding up production.
The engineering lead loudly told Elon to get the fuck off the manufacturing floor if he wanted any vehicles finished that day, that the engineering team didn't come in on a Sunday to dick about with execs and they would walk out if the execs didn't leave. If they wanted to talk they could schedule a meeting for Monday morning. Elon shut up and left and the team went back to building vehicles.
The engineering lead left the company several months after the Model S shipped as did most of the powertrain group. Tesla continues to burn through engineering talent, but like Apple, has a still continuous stream of bright eyed naive true believers willing to sign up.
Of the $2.4 billion raised, about half must go toward servicing existing debt, and with the money they already had in the bank (about $900m), they have about $2.1b liquid cash to see them through the next 10 months, assuming the same burn rate (losing $200m/month).
Tesla had ~$2.5B in the bank before the capital raise, and are going to be receiving a multi-hundred million to $1B payment from Fiat Chrysler (https://www.ft.com/content/7a3c8d9a-57bb-11e9-a3db-1fe89bedc...) to offset their emissions. They have plenty of money in the bank for the foreseeable future, but they won't if they don't cut their expenses or increase sales. To me, this just looks like a company exiting startup wild-west spending and maturing into a full-fledged company with hard-set processes for company expenses.
Someone else in this thread has stated that a) around half of the raised money needs to be used to service debt b) Tesla had $900 million in the bank before raising money. Doing the math based on the letter's $200 million/month loss rate that comes out to 10 months before Tesla is utterly out of money.
Tesla's cash balances are always higher and the end of the quarter, when they draw on the ABL while also selling a mass of cars that serve as collateral for the same ABL. Look at the interest they earn each quarter to get the average cash balance.
>On Jan. 30, Musk told investors he thought Tesla would continue making money after finally turning its first back-to-back profits during the third and fourth quarters of last year, fulfilling his previous forecast that Tesla would become “sustainably profitable” from the third quarter of 2018 onward.
Followed by a massive quarterly loss of $700MM and the pronouncement that the company has less than 10 months of cash after raising money (which we were also told would never be needed again). Can someone explain how that happens?
It’s because I didn’t buy a Model 3, as I wasn’t offered a $35k version along with the $7500 federal rebate as I was planning on. Suspect a few tens of thousands of others made the same decision. Congress needs to pass the $7000 electric car tax credit or Tesla has a long bumpy road ahead.
Sure... I was planning on buying the $27,500 (after rebate) version. As the rebates have expired, that theoretically priced Model 3 no longer exists. At $27,500 it was an amazing deal - better than an Accord or Camry.
A Tesla Model 3 at $27,500 would have been such an absurdly sweet deal the demand would be ludicrous.
If they could have snapped their fingers and manufactured as many as they needed, I would guess based on passenger vehicle sales numbers, they could have sold 300,000 in a single quarter at that price. They barely build that many in a year.
I’m sorry, you were never going to see a Model 3 for $27,500. With the way the credit phases out, they could never have built up the capacity to fulfill $35k orders under the full credit, just to have the price then spike as the credit phased out and be left with huge excess capacity as it came back to full price.
I was certainly in the top few people placing my reservation. High enough that if they were delivered in order of reservation, I’d have my $27,500 Model 3. They opted to maximize their revenue by delivering the expensive versions first. A Tesla won’t be my next purchase.
That alone tells a lot about their costs as well. My personal conclusion was that Tesla failed to make a profit from the 35k $ version and pushed the higher priced versions.
"The most you could said is that [Tesla] executives were too optimistic. They presented a better face to the situation that should have been presented in the final few months, but then, if they didn't do that, it would have become a self-fulfilling prophecy - as soon as a CEO says I'm not sure if we'll survive, you're dead. You know, I think people are making too much of this [Tesla] thing."
Fraud. It was apparent they were hurting those quarters and the math didn't seem to add up. The we are profitable announcement was on the heels of high profile departures in their accounting and finance department.
"Who then maintains the proprietary software that keeps the vehicle running?"
There are a number of Tesla vehicles out in the wild that for various reasons no longer connect to Tesla and do not receive over-the-air software updates. Some of them are running software versions that are now several years old.
Sure, they don't get the latest software features or UI design, but as a car they still work just fine.
Recalls can happen a decade later even. Would tesla owners even realize a critical component is defective after the company folds, let alone recieve a recall repair? If I owned a tesla and they folded I’d trade in my car that afternoon.
Would this not be just like any other software that becomes abandon-ware? Use it if you want, but just know there's no recourse if it doesn't work. Also, this would be a good example of why right-to-repair should be allowed.
This is a good question whether Tesla survives or not. If you buy a car that is heavily dependent on software, even if the brand does not go out of business, who will support it in 10 or 20 years? Most automakers do not support their vintage cars or make new parts for them.
A 20 year old car isn’t really vintage, but it’s trivial to find parts for most cars going back at to the 90s, at both the dealership and places like Napa.
Are they though? The software in 20 year old cars is more akin to that in a digital wristwatch (as in, super basic and never needs updating). Also, old cars contain far more electro-mechanical components than software. In comparison, modern cars are Internet-connected computers on wheels (especially Teslas).
For example, my 1999 VW has a mechanical headlight switch, dead simple mechanical starter engagement, manually-controlled climate controls (there's a direct physical connection between the dials and the flaps), electro-mechanical wiper control relay module, a basic self-contained radio, manual windows, and directly switched interior lights. Heck, the only thing that is computer-controlled is the engine timing, fuel injection, turbo actuator, dashboard dials, ABS, accelerator pedal/cruise control, airbags, and locks. And my car is hardly out of the ordinary.
Doesn't the 3 model require a phone to unlock, and if you want a separate fob, you need to pay extra? What happens when the phone app is no longer available? I don't like that it doesn't even have a mechanical key.
I guess whoever buys up that aspect of Tesla when the shareholders sell it to pay them and the company's debts off.
If someone does it I would imagine they would charge for it. Considering Tesla is considered a luxury brand there would probably be a decent business there.
This seems to be similar to any of the digital media companies that used DRM on all of their content that suddenly could not be played when they shut down the service.
There are many auto manufacturers that have left various markets or folded at various points in time. Most major recent one I can think of off the top of my head that isn't mentioned in another comment is Suzuki leaving the North American market in 2012 (USA) / 2014 (Canada).
I'm curious whether Tesla mortgages are sufficiently concentrated that there are specific instruments that collateralize large portions of them, and you could buy credit default swaps on those.
I mean, if the value of the underlying asset is suddenly reduced, you'd expect delinquencies to rise markedly.
What kind of car are you driving??? My Acura 2016 doesn’t support AppleCar and never will. I don’t think there are any other cars out there that get updates anyways!
We have conflicting information, One is that Tesla only has $900M Net Cash before the $2.4B raised, and how it needs to use half the $2.4 to service debt that they previously hold, and assuming the recent burn rate of ~$200M per month they will only have 10 months left.
Another is Tesla had ~$2B Cash before the raised, ~$2B Receivables, and newly $2.4B Cash raised. Not sure on Net total, and he $200M / month burn rate is only last quarter figurer and not a representative trend.
I don't know which one is right or which one is wrong, I don't have time to dig out figures either. But this proves even basic numbers that are wrong ( Assuming one of them are ) could easily be spread out.
Am I right to assume that if Tesla files for bankruptcy protection, all car deposits basically vanish? I assume there's miles of higher priority creditors lined up than consumers who paid a deposit. Do we have any sense of how many outstanding deposits there are still?
No. Bankruptcy isn't debt forgiveness. Buyers and the lawyers representing the class action suit would have a seat at the hearing and would be able to get in line for whatever is left.
That said: come on, people, Tesla isn't filing for bankruptcy. There are hundreds to thousands of perfectly normal financing options available to run a company with revenues like this that will stretch a cash shortfall into a decades-long decline. And that's assuming that their revenue won't continue to grow.
This is a story you cite if you want to "prove" that Tesla won't take over the world or is eventually going to be passed by Toyota or whoever. Large corporations just don't die like this.
I still don't understand the community of people who... really, desperately want Tesla to fail. Is this a politics thing about EVs? A reverse cult of personality around Musk? Hipster group think? It's really unsightly.
EVs are fine but I don’t like Tesla as a company. I don’t want OTA updates, I don’t want a car that phones home like Chrome and Windows 10, I want the ability to fix things myself. I want to actually own the things I buy. Basically, I see Tesla as pushing for TOS/licensing like model for car ownership. I want too see companies like that fail.
I think it’s more that I think there’s something fundamentally wrong about a company existing for 7+ years, spending billions and having yet to turn a profit.
It doesn’t really matter whether it is Tesla or Uber.
Most people have Google and Amazon accounts and indirectly shares also, but lot of us are very critical on them on other hand Tesla owners and share holders seem different, they are out get anybody who questions that company or their dear leader.
Even buying the burn rate in the title, Tesla's losses are like 8% of revenue. That's not at all far off from where Amazon and Google were in their early years. Again, it's not that there isn't an accounting worry here, what concerns me is the... hate. Just the visceral hate about this company that wants it to fail so badly that it leads people to apply these crazy double standards.
In your endeavour to rake people you perceive as internet haters over the coals, you also target people like me who genuinely wants Tesla to succeed but is the kind of person who loves asking questions and understanding how things work. And that really diminishes your credibility as perceived by everyone who reads the thread.
Also it just kind of stings and discourages me from participation because then I have to deal with comments like yours.
To be clear: you asked a question about bankruptcy, that I answered. I also editorialized a little at the clearly implied frame of your question which seemed to assume that TSLA would be in chapter 11 in ten months. And that's insane.
If you were merely wrong and not spinning, I sincerely apologize. It's exceedingly hard to tell these days. Because hate.
It's weird but I don't see any visceral hate. Just people asking hard questions.
Amazon/Google are also terrible examples to use. If either went under there is no effect on consumers. If Tesla goes under then many owners will have a car on their hand that potentially can't be supported.
He was entrapped, but he certainly said yes to bankrolling a cocaine smuggling operation, there's a recording of that event. While that was enough to escape conviction, it still cost him money and reputation at a time when he couldn’t afford it.
Legally they are liabilities that don’t as much disappear as they become claims. Deposit holders become creditors. It’s seventh in the priority list behind other secured priority creditors. It’s messy.
11 U.S.C. § 507(a)(7) provides the priority for Customer Deposits: “The following expenses and claims have priority in the following order: … (7) Seventh, allowed unsecured claims of individuals, to the extent of $2,600 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.
At this point the Tesla brand is so valuable that the company is unlikely to die. A more likely outcome is that Tesla will be partially or fully acquired by another company.
The Ford-Mazda partnership that ended around 2015 is one possible model.
It'd be a wake-up call for the "technology alone, no policy needed" strain green optimism.
I'm more and more convinced that we need strong, supportive policy to transition to a carbonfree future in time to avoid the worst effects of climate change, and that the current political situation looks incredibly grim from that perspective. It's pretty common for states nowadays to pass punitive taxes on EVs as "compensation" for lost gas taxes, universally over-estimating the number of miles an EV driver typically does in a year: https://www2.greencarreports.com/news/1123069_1000-illinois-...https://cleantechnica.com/2019/05/17/whos-behind-the-war-on-...
China has incredibly supportive policy for EVs right now. From a purely industrial policy standpoint, we're close to strangling our own nascent EV industry with the sunsetting of the EV tax credit and all these new punitive state-level EV taxes. (Few Bolts are made, the Volt was recently canceled, and Tesla is struggling after having to deal with roughly a $3750 impact on their car price, soon to be increased to $5625 and then $7500... many of the rest are compliance cars or are available only in extremely limited quantities.)
If things don't change soon on the political front, it could be really bad. For the US and the world.
If he's really serious about making a dent in expenses, he should definitely consider hiring outside of Fremont, CA. There's much more cost effective labor outside the bay area, up to 1/3 cheaper in the rest of the US and even cheaper outside the US. I understand, factory jobs can't be outsourced since people have to use the factory in Fremont, but software engineers, web designers should be remotable.
The headline is misleading. Elon was just stating that the cash burn rate of the first quarter would eat up the newly invested capital in 10 months. He did nowhere say, that he expects the cash burn rate to stay constant, even without the savings he plans to implement. Q1 was a quarter with low deliveries - while more M3 were made than in Q4, less of them reached their buyers before the quarter end and thus a lot of them couldn't be accounted as a sale yet. All indications are, that in Q2 the total amount of delivered/sold cars will be quite a bit higher than in Q1, which also would improve the finances accordingly. Probably not enough to break even, hence the saving money initiative.
A car isn’t a video game where the worst thing that a bug does is ctd. Sometimes cars are recalled years later because they burst into flames due to a poorly designed component. Who handles teslas recalls after tesla? And who repairs your tesla when the only people approved to repair teslas is tesla? Who keeps making oem parts? This is a lot more complex than call of duty 4 losing dedicated servers.
This is not true. What he says in the memo is "it would take us 10 months to burn through the $2.3 billion we just raised at our Q1 burn rate"
They've guided for a "significantly smaller" loss in Q2, and positive cash flow in Q3 and Q4.
With $2.4 billion raised, $2.2 billion in the bank, and $2 billion worth of payments coming from Fiat Chrysler cash is not as much of a concern as the headline would suggest.
The headline used to be "Tesla Has 10 Months of Cash to Burn Before Dying Out" before we changed it. That's because the article was originally a different one—see https://news.ycombinator.com/item?id=19950431.
The batteries were not faulty that is just how they react to stress, and the older they get the more susceptible they become, 20 years from now i would bet they become the most common cause of house fire while being charged.
As far as I know Tesla is still stuck in the rut of trying to over-automate their production while spending more money for worse outcomes than just hiring human assemblers.
If they weren't already spread thin this would be a good investment, as they are learning and pushing the envelope. That's a valuable asset and could make a huge difference in long term.
Traditional car companies must be damn scared to have to publish this FUD.
Tesla cannot be possibly dying out. Don't you see Tesla cars everywhere in the US? yes they are spending money, buying things to grow as they are so incredibly successful they cannot satisfy demand. Dying out? you make me laugh.
If you spend 10M dollars buying equipment that in a year is worth 100M dollars, you are not dying out.
No I don't, might see one once a week or month. They're common in Silicon Valley but that's a small fraction of the US.
edit: Tesla has sold something like 300k cars in the US which comes out to under 0.15% of all cars in the US. So basically, negligible. And a third to a half of that seems to have been in California. So in most of the US you'd need to look at on average 2000 cars before you see a Tesla.
I live near Kansas City, and see probably a dozen a day. They seem to be very popular, but there is a good charging infrastructure in this area. I'm cheap though, and bought a used Leaf.
No, I do not see Teslas everywhere in the US. In fact, I see the same brands I've seen forever: Fords, Chevys, Hondas, Toyotas, etc. etc. Tesla makes a niche product for a dedicated few. How is this debatable?
If you spend $10 million making things that you sell for $9 million dollars then it doesn’t matter how wildly popular your product is, unless you have another source of income to cover that $1 million then you will be out of business when your reserves are depleted.
Arotega's post outright states Tesla is spending money to grow to meet unmet demand, and that seems to be backed by actual Tesla unit and income numbers. You've countered with a static, ungrowing fixed income/cost model, with numbers pulled out of thin air, with no rationalization behind those assumptions.
I haven't downvoted you, but you've posted what's at best a toy mathematical model unrelated to Tesla. Others might be downvoting under the assumption that it was supposed to be related to Tesla, in which case they're probably downvoting based on the misapplication of math.
Expanding your math model by the tiniest bit - if $2M of those costs are fixed, merely doubling production could bring you to break-even (2x9=18, 2+2x8=18), assuming income and costs linear with unit volume. Further growth would enter profitability. But even this is super unrealistic - the entire industrival revolution was basically driven by our ability to use automation to drive costs sublinear faster than income goes sublinear, which also leads to profit.
Please Elon focus on SpaceX and Boring Company. Tesla has already succeeded. You’ve made gasoline cars uncool and all the major car companies are coming out with electric models. Tesla is just a giant drain in your time now.
Seems like what Tesla should do is convert two of the four model 3 lines to the model Y. They are very similar cars, so it should help their time to market. If the model 3 gets a bit rarer (and the average selling price raises) all the better.
And on the lower end a friend has a Renault Zoe. An excellent car on all accounts. I saw a base level black model 3 the other day parked and I tought what a cheap looking car, it was truly underwhelming (where I live there aren't many Teslas). Then I saw that it was a Tesla which costs about 50000$ here...
I don't care about model S ludicrous mode acceleration, nobody actually needs that kind of acceleration from traffic lights. Well maybe if you have low self esteem and try to compensate for something?
1. I don't know if that math is entirely solid. They got 2.4 billion and in the past quarter ran though 200 a month, thus 10 months before they're empty. But that's not exactly how it works, for all I or anyone knows the last quarter was very tooling heavy and they chose to pay costs all upfront instead of amortize costs. IDK.
2. I work in automotive. I was a the room with 3 VPs from a BIG 3. They weren't threatened by Tesla (right or wrong), they merely agreed that some day soon Tesla was going to learn "how hard it is to build a real car". Knowing the backend, and understanding the difference between acceptable failure rates on say a McLaren 570 vs a Toyota Corolla. What they meant was it's one thing to ship a few cars, it's another to get where Tesla seems they need to be to get profitable. Just an anecdote.
for all I or anyone knows the last quarter was very tooling heavy and they chose to pay costs all upfront instead of amortize costs. IDK.
Many people do know...Depreciation is subject to specific tax and accounting rules. While for tax purposes some (but not all) of Tesla's spending is immediately depreciable, for accounting purposes, none of it is, so their tooling costs must be depreciated over the useful life of the equipment. Depreciation also isn't relevant to a discussion of cash flow, as depreciation is merely an abstract number representing estimated wear and tear.
I said amortization and tooling. Not depreciation.
And the point is, it’s foolish to assume that what happened last quarter is what will happen this quarter. If you don’t think so, please show me the billions you’ve made in the stock market.
Amortization is simply depreciation of intangible assets...
And with Tesla and Elon Musk especially, it's extremely foolish to assume that Tesla will meet any of the benchmarks that Elon has ever set...since they never have.
Right now, Elon is saying they have 10 months until cash runs out. And knowing Elon, that's almost certainly an overly optimistic prediction since it doesn't take into account the increased burn rates necessary to launch the Model Y or the self-driving taxi fleet, so less than 10 months. If Tesla doesn't raise additional capital by the end of 2019, they won't see the end of 2020 as a going concern.
So much this... There are texts written with military contexts in mind from which you can extrapolate non militaristic lessons (The Book of Five Rings, for instance). The Art of War is not one of them. It's not surprising to see it quoted a lot though. I'll leave with a quote from Naggum; whether one thinks it's fair to Gates matters less in this context than if there's agreement that the outlined problem exists:
"the problem I see is not that Bill Gates has shaped the world of useless
trinkets in software, but has also managed to spread his competitiveness
and his personal fear of losing to imaginary competitors to businesses
and homes everywhere, so now everybody is _afraid_ of losing some battle
which isn't happening, instead of getting about their own lives."
Sure, it isn't exactly the same situation as a war, where one country is fighting his neighbor country to the death. But to say that the art of war has no lessons to teach those of us who are not literally in a war is ignorant.
Perhaps I am ignorant. I've only gone through one translation of The Art of War, perhaps others are better, but for all such texts there are always motivated translators purposefully not capturing what was originally written in order to make it seem more broadly applicable.
This discussion has reminded me that your oft-quoted "quote" doesn't seem to originate from any actual translation, but is a rephrasing of a bit of chapter 1, where it says "Therefore, when able, seem to be unable;" followed by a lot of other things. It's also worth pointing out what immediately precedes the 'therefore', which is: "Warfare is the art of deceit."
That simple line left out of the version you quoted is crucial. Context matters, and applies for quotes even when the original is in English (see the full context of Knuth's premature optimization quote for instance). The context here is about deception in war. At best you could extrapolate it to situations where deception against your foes is needed in general, but even that is stretching things, and certainly doesn't apply all that much to publicly traded companies like Tesla. The closest analog for them is guarding trade secrets. Besides, deception is usually frowned upon outside of armed conflict, and if a public company deceives the wrong people about the wrong things, and gets called on it, then the company and its higher ups aren't going to have a good time. For example, cooking the books to 'appear strong' would be a rather egregious deception.
Some forms of deception can have a more legitimate purpose in certain business dealings, it's true, as I'm now reminded of Gates' love of poker and some of his great bluffs in MS's early days. Though the consequences of failure wouldn't have been beheading. I'll quote the rest of the paragraph from my translation though and let you decide if Sun Tzu has anything to say about this narrow form at the poker table or when trying to arrange multi-party business dealings promising future deliveries:
"when nearby, seem far away; and when far away, seem near. If the enemy seeks some advantage, entice him with it. If he is in disorder, attack him and take him. If he is formidable, prepare against him. If he is strong, evade him. If he is incensed, provoke him. If he is humble, encourage his arrogance. If he is rested, wear him down. If he is internally harmonious, sow divisiveness in his ranks. Attack where he is not prepared; go by way of places where it would never occur to him you would go. These are the military strategist's calculations for victory--they cannot be settled in advance."
There's an influential rival school of thought that says when you're strong the enemy should know you're strong. If they think you're weak, they're not likely to attack you as a pre-emptive measure. But they're fairly likely to attack you for the normal reasons.
Demand is dropping off as (a) serious competitors come onto the market e.g. Mercedes EQC, (b) the time between a model refresh increases e.g. S and X models and (c) the concerns over customer service increase.
And I still believe that the Model 3 was a mistake to release at this time. It is cannibalising their higher priced models and squeezing the company's overall gross margins at at time when they need money.
I think Porsche Taycan is a bigger threat as it will target Tesla's high profit margin cars. I would assume people who spend 80-120k for cars would prefer Porsche dealerships and service, while Tesla sales and service centers are inundated with $40k buyers issues.
I checked EQC, it still felt like a compliance/test vehicle compared to Taycan, which Porsche has been testing in several continents under extreme weather conditions for over a year now.
Elon Musk wants to colonise Mars and make the world carbon neutral. He ain't no financial charlatan, due to the size of his ambition his companies are always going to be maxed out on their lines of credit. If this Tesla gig turns into a roaring success then you can be Elon Musk would be similarly looking at financial annihilation on some go-to-Mars project.
From this perspective the roll out of Model 3 was to be sooner rather than later. The 3 is an extremely good product that makes the S/X models appear dated, so it is a single model company really.
For the save the world vision to work that means selling as many Model 3's as possible and encouraging all other marques to be going carbon neutral too, with electric power being table stakes.
1. Is anyone still buying car? May be it's a huge necessessity in US but most of the cities are fairly packed and have good public transport and improving
2. Idea of self driving car will indeed be a big selling point. Still people will pool those and cost of transport in general will come down because of Uber's fleet. Self ownership will still not go up significantly unless idea is to buy for long distance travel (not city travel)
3. The rumors this could be beginning of Tesla being taken private by EM has merits, considering his recent spat with SEC
>>1. Is anyone still buying car? May be it's a huge necessessity in US but most of the cities are fairly packed and have good public transport and improving
Is this like....a joke? I mean I get it - I used to live in a big city where owning a car just seemed stupid and wasteful. But once you live outside of the metropolis, where yes, there is public transport(in a form of a bus or two going every two hours), and you have kids and things to do, then yes, cars are still a necessity.
2. Proper self driving cars are years away. Autopilot given the recent crashes are going to see some regulatory investigations and I suspect will be curtailed. Not that any of this is relevant since we have Uber today and not everyone is switching exclusively to it.
> most of the cities are fairly packed and have good public transport and improving
an opinion piece in the Los Angeles Times today noted that the number of riders on the Metropolitan Transit Authority lines has decreased recently. people in LA, despite very severe traffic, are still willing to take private vehicles when they can. as the article notes, one reason is that about 20% of riders (reporting in one survey) said they had been sexually harrassed while riding the MTA.
> in US but most of the cities are fairly packed and have good public transport and improving
Cities like Houston are very much automobile cities. A large amount of the population lives in suburbs not well serviced (or serviced at all) by public transport, aside from park and rides to get into the city. I wouldn't call it good either - the commuter buses aren't bad, but the rail is scarce and feels very risky (https://abc13.com/travel/metro-promising-new-enforcement-too...), and the city buses feel even sketchier.
(I take the public transport into and out of Houston 3-5 times a week)
Is anyone still buying car? May be it's a huge necessessity in US but most of the cities are fairly packed and have good public transport and improving
Yes and people still watch TVs even if you haven’t owned one in 15 years....
This resulted in engineers that would purchase their own equipment and bringing it to work to use because they couldn't wait a month for a $200 piece of equipment. It was common to have lab benches full of used equipment from ebay that engineers purchased to get their jobs done. This created an interested dynamic in the lab when it came to sharing equipment (most of it was not shared). Also, scary to know that since a lot of used equipment was being relied on, a large portion was not calibrated and could be outside spec.
There is a lot of value in creating a thrifty company culture, but sometimes it goes too far and hinders the ability for engineers to do their job. In the end, everyone is responsible for ensuring the purchase they make are wise and necessary for the success of the company.