Tesla Burns Through Record Cash to Bring the Model 3 to Market • Hacker News Board

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#11

Post by bryanlarsen » Thu, Aug 03, 2017, 2:08 PM UTC

kgwgk wrote: post #8

princekolt wrote: post #2

> The company burned through $1.16 billion in cash in the second quarter by spending on capacity for its cheapest model yet and boosting battery output. This makes me very happy. It's very rare for a large company to literally risk their existence to bring a new product to market. Most prefer to just sit in the pile of cash and profit from margins...

To sit in your pile of cash and profit from margins, you need to make money and have positive margins. You make it sound as if they could have chosen that path...

The gross margin on the Model S is over 25%.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#12

Post by maxerickson » Thu, Aug 03, 2017, 2:10 PM UTC

dev1n wrote: post #6

samfisher83 wrote: post #5

Earlier quoted context omitted.

I think a slower roll out would be prudent. If you burn all your cash and you are forced to raise cash it puts you in a bad situation. This is brand new car. Companies like Toyota have issues with their cars and they generally only make incremental changes to each model, and Toyota Production System is probably one of most taught and studied system for production.

If you haven't seen a review on the model 3 I highly suggest MKBHD's review. He goes over how a lot of pieces of a standard car are stripped out (I.e. No physical buttons) this was to reduce manufacturing complexity and increase production speed. Toyota does not build cars like the way Tesla has engineered this end to end.

Speed is different than labor time per vehicle.

Complex manufacturing is typically a highly parallel process.

For instance, as Tesla ramps up to 5,000 vehicles a week sometime this year, Toyota will sell 30 to 40 thousand vehicles a week just in the US. One of them is obviously producing vehicles faster.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#13

Post by simonsarris » Thu, Aug 03, 2017, 2:13 PM UTC

11thEarlOfMar wrote: post #10

simonsarris wrote: post #7

> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you wan…

Yes, I learned this fact painfully. I bailed on my IPO AMZN shares because they kept taking on massive debt. Just didn't have the stomach for it. Of course, that was 2004, about 1/20 of today's price.

I wouldn't take it too badly,* its not as if there's no risk to taking on billions of debt, so if you feel something is too risky for your investing dollars, maybe you did the right thing for you at the time. If you don't think they (Musk, Bezos, I wish I could think of a failed example![1]) can spend it wisely.

The interesting thing to me is that we know that Tim Cook (and other cash rich companies sorry to pick on Apple) cannot spend the money wisely. And they know it too. That's why it's sitting there, where "sitting there" is the best ROI they can think of so far. I think the existence of such large cash piles should worry us all more than it does.

* just kidding if I bought AMZN at IPO and sold it I'd take it pretty badly.

[1] thought of one. If you don't remember pets.com, you owe yourself a treat: https://en.wikipedia.org/wiki/Pets.com

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#14

Post by samfisher83 » Thu, Aug 03, 2017, 2:13 PM UTC

dev1n wrote: post #6

samfisher83 wrote: post #5

Earlier quoted context omitted.

I think a slower roll out would be prudent. If you burn all your cash and you are forced to raise cash it puts you in a bad situation. This is brand new car. Companies like Toyota have issues with their cars and they generally only make incremental changes to each model, and Toyota Production System is probably one of most taught and studied system for production.

If you haven't seen a review on the model 3 I highly suggest MKBHD's review. He goes over how a lot of pieces of a standard car are stripped out (I.e. No physical buttons) this was to reduce manufacturing complexity and increase production speed. Toyota does not build cars like the way Tesla has engineered this end to end.

The only you can make statement like this is based on data. We will see how the quality of the car once they have a few thousand on the road. Model S has had a bunch of quality issues.

An electric car is theoretically simpler than a gas powered car. It has a battery and a motor. Electric cars were popular before gas cars in early part of the 20th century.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#15

Post by jgalt212 » Thu, Aug 03, 2017, 2:17 PM UTC

simonsarris wrote: post #7

> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you wan…

The AMZN model won't work b/c no matter how good Tesla's products are, he won't be allowed to create a monopoly. The zeitgeist has shifted, and VC's and investors who are betting on future market domination or monopolies are going to be disappointed.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#16

Post by frenchie4111 » Thu, Aug 03, 2017, 2:17 PM UTC

lafar6502 wrote: post #9

The harder they will hit the wall

Would much prefer to run into a wall driving a Model 3 than a Prius

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#17

Post by feld » Thu, Aug 03, 2017, 2:19 PM UTC

jgalt212 wrote: post #15

simonsarris wrote: post #7

> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you wan…

The AMZN model won't work b/c no matter how good Tesla's products are, he won't be allowed to create a monopoly. The zeitgeist has shifted, and VC's and investors who are betting on future market domination or monopolies are going to be disappointed.

They're not going to be a monopoly. They will be the only company on the planet that can produce the motors and batteries(!!) that are required for high quality and reliable EVs.

Tesla will make some cars for Tesla fans. Tesla will make billions selling key parts to everyone else. So they'll be the new Bosch of EVs, really.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#18

Post by bflesch » Thu, Aug 03, 2017, 2:22 PM UTC

jgalt212 wrote: post #15

simonsarris wrote: post #7

> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you wan…

The AMZN model won't work b/c no matter how good Tesla's products are, he won't be allowed to create a monopoly. The zeitgeist has shifted, and VC's and investors who are betting on future market domination or monopolies are going to be disappointed.

Most people will be driving either a Tesla or a Chinese-made electric car in a couple of years, and like with the iPhone vs. cheap Androids there is a good chance that people will prefer Teslas for their familiar UI, American design, or some other reason we currently don't even have on our radar.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#19

Post by whatok » Thu, Aug 03, 2017, 2:23 PM UTC

simonsarris wrote: post #7

> “He’s going to need capital,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “That’s the one part of the financials that are a little bit troubling. To underestimate the cash burn over the next six months will be a mistake.” It's not that troubling. Even massive companies (AMZN in 2014) need to raise big capital. When you have something you wan…

Tesla is raising money and is valued like it's a growth stock and it should. Amazon has been and arguably still is valued as a growth stock but has been internally financed to a much larger degree.

There's a massive difference in Amazon raising cash vs Tesla and the form of capital raise is also huge. Amazon has only had one secondary offering (2003) while Tesla has had an offering every year except 2014. The Amazon "big capital" raise you point out was in the form of vanilla corporate bonds while Tesla has only issued convertible bonds. Had Tesla wanted to issue regular corporates (more than likely junk rated if their convert ratings are any indication), I'd imagine they would struggle to meet the interest payments. Additionally, any large corporate issuer with good cash flow has been taking advantage of low interest rates and Amazon is among them.

Tesla is raising money and is valued like it's a growth stock and it should. Amazon has been and arguably still is valued as a growth stock but has been internally financed to a much larger degree.

This is not to say that Tesla is doomed blah blah blah. It's to illustrate that Amazon has cash flow while Tesla doesn't and is much more susceptible to the whims of capital markets. I'd also like to point out that Amazon is probably more able to weather economic cycles than Tesla is and that's primarily when cash flow poor companies either aren't able to raise or raise at ridiculous terms.

Re: Tesla Burns Through Record Cash to Bring the Model 3 to Market

#20

Post by kgwgk » Thu, Aug 03, 2017, 2:24 PM UTC

bryanlarsen wrote: post #11

kgwgk wrote: post #8

Earlier quoted context omitted.

To sit in your pile of cash and profit from margins, you need to make money and have positive margins. You make it sound as if they could have chosen that path...

The gross margin on the Model S is over 25%.

Gross margin doesn't give you the full picture. SG&A (20% of sales) eats most of that margin and R&D is 12% of sales. I'm not sure how profitable Tesla could be cutting this additional costs without going too far (to avoid compromising the viability of the company).