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Tesla Burning Cash

May 1, 2018

From Bloomberg:

 

Tesla Doesn’t Burn Fuel, It Burns Cash

By Dana HullDana Hull and Hannah RechtHannah Recht

A complete guide to how Elon Musk has raised, and then spent, billions of dollars.

animation showing Elon Musk throwing dollar bills into flames of Boring Company flamethrowers 

 

The company that Elon Musk built to usher in the electric-car future might not have enough cash to make it through the calendar year.

The anxieties that lurk beneath the tremendous ambition of Tesla Inc. moved into the forefront in recent weeks. The company again fell far short of its own production targets for the mass-market Model 3 sedan, another person died in a crash involving its assisted-driving feature and Musk entered into a public dispute with federal safety regulators. Tesla’s once high-flying stock, buffeted by a downgrade from credit analysts, has dropped 24 percent from its peak in September.

There’s a good reason to worry: No one has raised or spent money the way Elon Musk has. Nor has any other chief executive officer of a public company made a bankruptcy joke on Twitter at a time when so much seemed to be unraveling.

Tesla is going through money so fast that, without additional financing, there is now a genuine risk that the 15-year-old company could run out of cash in 2018. The company burns through more than $6,500 every minute, according to data compiled by Bloomberg. Free cash flow—the amount of cash a company generates after accounting for capital expenditures—has been negative for five consecutive quarters. That will be a key figure to watch when Tesla reports earnings May 2.

 

In years to come, we will all look back and wonder how so many people were taken in by this shyster, who makes Enron look honest.

 

A lot of Musk’s money has been extracted from suckers, who think he is God’s gift, as Bloomberg report:

One of Tesla’s greatest strengths is its ability to monetize the patience and goodwill of its customers and loyal fans. The company is sitting on a staggering $854 million in customer deposits as of the end of 2017.

Since Tesla sells its products direct to consumers, without relying on a dealer network, customer deposits are cash payments that essentially serve as interest-free loans—and these loans can stretch on for years. If Tesla were to go bankrupt, those deposit holders would likely be wiped out.

Tesla is holding customer deposits for two vehicles that aren’t even in production yet: an electric Tesla Semi ($20,000 deposit) and a next-generation Roadster (either $50,000 down or the $250,000 retail price paid up front to reserve a limited edition). Even customers interested in installing an array of solar roof panels or the company’s Powerwall home battery must hand over $1,000 to place an order.

Tesla doesn’t break out deposit numbers by car, but the vast majority comes from $1,000 reservations for the Model 3. When Musk first introduced the lower-priced sedan in March 2016, fans stood in long lines at Tesla stores. Two years later, the slower-than-expected pace of production means that most of the more than 400,000 reservation holders are still waiting. And new people appear to be joining the queue: As of April, the company reported “net Model 3 reservations remained stable.”

There’s an additional source of free money from loyal believers: An unknown number of customers have paid up for vehicle features—$3,000 for “Full Self Driving” capability, for example—that Tesla thus far hasn’t figured out or released to anyone.

The consumer psychology that sees hundreds of thousands of people essentially extending an interest-free loan to a public company is unusual, to say the least. Consider the devotion of Bruce Sidlinger, a 60-year-old aerospace engineer who lives in Flagstaff, Arizona:

“The morning after the Roadster was announced, I put a deposit down. Putting down $50,000 for a Roadster that won’t be out for a few years is kind of like buying a bond that returns zero. Elon Musk is one of our planet’s great hopes. I would offer a kidney to him if he needed it.”

Keep in mind that Sidlinger already owns both a Model S and a Model X. He drove across the country to Florida earlier this year in a car made by one Musk company so he could watch a rocket made by another Musk company take flight for the first time.

 

I think the phrase “more money than sense” rather sums it up

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41 Comments
  1. Joe Public permalink
    May 1, 2018 9:43 pm

    If his car manufacturing plans go tits-up, he could always flog more of his batteries to South Australians to help keep their grid from falling over again.

    • May 2, 2018 12:02 am

      Except that to date if he has saved the Aussies – we wouldn’t have heard the last of it … would we?

    • bobn permalink
      May 2, 2018 1:23 pm

      His famous aussie battery array only supplies about half an hours electricity and then its flat. Not in the least cost effective.

  2. Frank Everest permalink
    May 1, 2018 10:11 pm

    …yes, but he has also successfully developed satellite launch capability and re-usable boosters which NASA failed to do at many times the cost. And launch customers are using them.

    • May 2, 2018 2:49 pm

      Many people could have done that with the ability to raise the cash. I’m a space travel enthusiast and engineer but I hsve no idea how he managed that.

  3. Bitter@twisted permalink
    May 1, 2018 10:16 pm

    I have said several times that “Enron” Musk is a con-artist.
    Looks like I was right.

  4. Nigel S permalink
    May 1, 2018 10:17 pm

    VW had a similar deposit scheme when it started. The money was spent on tanks.

    • Charles Wardrop permalink
      May 1, 2018 10:52 pm

      Do you mean in the 1930s, under Hitler, or under the direction of the British Major who restarted VW just after the end of WW2 ?

      • Nigel S permalink
        May 2, 2018 7:40 am

        1930s

  5. Charles Wardrop permalink
    May 1, 2018 10:22 pm

    His customers are not the only examples of people with more money than sense: politicians in charge foisting almost every Green-related policy and payment are fools also, unfortunately using our taxed money to support the biggest con trick since WW2.
    Admittedly, we the electors are dopes also to credit them with having any sense and to rely on their judgements.

    • bobn permalink
      May 2, 2018 1:26 pm

      Yes. Musk lives on subsidies. All electric cars get a big subsidy in the USA at the moment, which is a major reason people buy them. When the subsidies are turned off, Tesla’s orders will likely turn off as well.

  6. Nigel S permalink
    May 1, 2018 10:24 pm

    Musk has probably got Sidlinger’s kidney on eBay already.

  7. markl permalink
    May 1, 2018 10:27 pm

    Musk outdoes the Silicone value hucksters he joined. Not only is he good at hyping futures but he even gets some payment for them years in advance. The question is…. can he keep Tesla afloat without subsidies? As much as California loves him the state and federal subsidies are drying up and he can’t stop it. With the low hanging wealthy virtue signalers already committed to his vision one wonders if he can continue selling over priced niche personal transportation at a rate to stay in busines. As much as I would like to see him succeed I believe his ego has bitten off more than it can chew. We’ll see.

    • May 2, 2018 8:35 am

      Musk sells promises which may turn into vehicles at some unknown future date, if his company hasn’t gone bust first.

  8. Bruce of Newcastle permalink
    May 1, 2018 10:29 pm

    The companies he has that are linked to global warming, Tesla and SolarCity, are doing badly.

    But his companies not linked to global warming, SpaceX and The Boring Company, are going well.

    Maybe the moral of the tale is he should stick to real businesses not mythical ones.

    • Nigel S permalink
      May 2, 2018 7:50 am

      At least he has a sense of humour. Boring Company name is based on the old YelIow Pages entry ‘Civil Engineers, see Boring’. Institution of Civil Engineers (I are one!) tried to get the UK entry changed which produced much mocking laughter, a splendid example of the ‘Streisand Effect’.

  9. May 1, 2018 10:37 pm

    Tesla = FanBoyism
    You can see it all over the net
    Soon as someone tweets some realism , 5 people tweet out devotion.
    Media gives a free ride as well.
    Share price dropped to 252 last month but rebounded to around 300, fell to 285 last week, no climbed back to 293
    I wonder if someone keeps a cash pile available to prop the share price up when it falls.

    • Nigel S permalink
      May 2, 2018 7:43 am

      Yes, hype as with iEverything, perhaps Apple gave him the idea.

    • May 2, 2018 10:22 am

      BBC business programmes give him more than a free ride, they give free infomercials.

      • Gerry, England permalink
        May 2, 2018 1:01 pm

        They are merely protecting their pension fund investment in Tosla while completely ignoring their charter.

  10. Athelstan permalink
    May 1, 2018 10:47 pm

    He was part of developing Paypal and sold it to Ebay in 2002 for ~ £1.5 billion, musk may still retain shares, the bloke is minted, a charlatan and A1 Branson clone but nevertheless minted.

    Whatever happens to Tesla, Musk will steam (couldn’t resist) on and on and on.

  11. lunaticfringe01 permalink
    May 2, 2018 12:20 am

    Tesla is not a car company… it’s a government subsidies harvester.

    • Nigel S permalink
      May 2, 2018 9:33 am

      Devonshire Research Group, LLC, May 2016: ‘Tesla is not a car, battery, or tech company; it is an experimental financial services company and should be regulated as such.’

      “the largest recipient of federal taxpayer subsidies in the history of the world”
      Myron Ebell 31.1.17 GWPF TV

  12. May 2, 2018 5:47 am

    There’s lots of truth in the old sayings; we have:

    “More money than sense” given above and
    “There’s one born every minute” and
    “A fool and his money are soon parted”.

    Nothing changes and some people still never learn the lessons from history.

  13. Stonyground permalink
    May 2, 2018 9:18 am

    Regarding electric cars generally. I have just acquired a SsangYong car. This is a Korean brand that isn’t that well established in the UK so you don’t see that many of them around. Amusing myself by playing counting games while out and about, I have noticed that these cars are roughly as common as electric cars are. Teslas and BMW electric cars seem to be the most common followed by the Nissan Leaf. I have seen just one Renault Zoe.

  14. Simon from Ashby permalink
    May 2, 2018 9:25 am

    Isn’t this a classic ponzi scheme? The company is kept afloat by cash flow from new depositors who, when the new depositor bank runs out, will never see their goods because the money will run out long before production gets round to them.

    • Sandy In Limousin permalink
      May 3, 2018 6:09 pm

      That was my thoughts as I read the article.

  15. Roy permalink
    May 2, 2018 9:33 am

    I guess the BBC still hold shares in their pension scheme. If so, no doubt we’ll be seeing positive Tesla stories very soon.

  16. May 2, 2018 9:51 am

    There have always been snake oil salesmen who can convince mugs that they are God’s gift. (Sometimes literally; think any end-of-the-world cult you like.)

    And there has always been a self-refilling barrel of mugs ready to be convinced. Musk is merely one more in a line which will end the day the world does!

    Good that there people like you, young Paul, to point out the lack of garments so that we can (sometimes) sideline the shysters before they can do too much damage. Apart from that, shrug and move on. Like London buses there will be another one (or three) along in a minute!

  17. MrGrimNasty permalink
    May 2, 2018 11:37 am

    Given the current ideological climate and the amount of taxpayer cash that has already been handed to Musk, I suspect most people (including Musk) don’t believe Tesla will be allowed to fail.

  18. Gerry, England permalink
    May 2, 2018 1:02 pm

    No need to feel sorry for all those who lose their deposits when the cash finally runs out as they are no doubt Democrats.

    • Athelstan permalink
      May 2, 2018 1:31 pm

      Among a host of alternative epithets, dumbocrat is the most polite.

  19. tom0mason permalink
    May 2, 2018 5:48 pm

    The psychology of the situation sounds very similar to what happens just before a crash. Driven by mass hysteria a market takes off driven by many people’s utterly irrational belief in a product or system and the perceived value it offers to improve their lives financially or socially.
    With Tesla added impetus to this irrational position is the US government funding it beyond it’s natural worth, coupled with the marketing spin and showmanship of Elon Musk.

    Some company crashes (and some financial depressions) have started from lesser beginnings. All that keeps Tesla going under is liquidity and public confidence. The slightest lessening of either of them and the company will slide further down the market, or even crash out altogether.

    • manicbeancounter permalink
      May 5, 2018 7:57 am

      Tom,
      Reading the full article on Bloomberg, there is more to Tesla staying afloat through liquidity and public confidence. For such a vast company ($50bn capitalization, 40,000 employees) it relies on
      – Confidence in one person. A true driven genius and a visionary but still just one person.
      – Profits from seliing “Zero-Emission Vehicle Credits” – $360m last year, or about $3,500 per car. Then customers get a subsidy in many areas. I think it is £5000 per car in the UK.
      – Being able to raise new finance all the time.
      – A unique marketing strategy, with no dealer networks and customers paying large deposits upfront with unspecified delivery times. For instance:-
      “Tesla is holding customer deposits for two vehicles that aren’t even in production yet: an electric Semi ($20,000 deposit) and a next-generation Roadster (either $50,000 down or the $250,000 retail price paid up front to reserve a limited edition).”

  20. Harry Passfield permalink
    May 2, 2018 8:42 pm

    Yet, CNBC say that Tesla (spit) shares have risen. To quote Paul Daniels…..

    • tom0mason permalink
      May 2, 2018 9:32 pm

      As I said “Driven by mass hysteria a market takes off driven by many people’s utterly irrational belief in a product or system and the perceived value it offers to improve their lives financially or socially.”
      Market price rises or falls do not often pure rationality or logical reasons.

      Warning the value of this comment may go up or down depending on your perception of it.

  21. Bill permalink
    May 3, 2018 6:03 am

    And there’s more. https://electrek.co/2018/02/03/all-electric-ferry-cuts-emission-cost/
    http://sailwiththecurrent.com/

    Once these things are loaded with electric cars, trucks, vans, motorbikes, bicycles that is one huge amount of battery charging required and not one of them can recharge on board!
    We are doomed, doomed I tell ya.

  22. May 3, 2018 11:48 am

    I always have a fond vision in my mind of the Los Angeles freeways clogged with little dead Tesla’s which have run out of battery life and glided to a halt.

  23. Gerry, England permalink
    May 3, 2018 12:54 pm

    It says a lot when Tesla shares rally because the latest losses are less than analysts expected. A shame Donald hasn’t pulled the plug on EV subsidies.

  24. dave permalink
    May 4, 2018 7:34 am

    The snake-oil salesman, and his customers, and his fools of investors are for the high jump.

    Schadenfreude? You can bet on it.

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