ever since i heard elon talk about cash flows increasing as model 3 production increases i've had that thought in my head. i've been trying to formalize the idea into a model but haven't yet. my view has gotten stronger since my last model s went into and out of production in about 27 hours, and then was delivered in about 2 weeks.
the basic idea is that if you have a very high materials vs. labor mix of cost in the model 3 and the suppliers are extending terms to allow payment in 60 days vs. 20 or 30, then the speed of production and delivery will be much faster than the payment cycle. tesla will collect gobs and gobs of cash weeks before it has to pay suppliers. that cash balance/operating cash flow will continue to swell until such time that the production rate levels off for 60 days.
anyone else think about this? once it starts it will be a beautiful thing to watch because it should continue for several quarters as production ramps.
This is exactly what I thought after hearing, I think, the Q3 ER. @DaveT and I had this conversation about raw material inventory cash requirements last fall. Certainly, for the Model X, there was a huge ramp of raw materials... and the ongoing delay in building the X caused a slew of problems. Just pushing the net terms past the existing quarter means a big change in the perceived cash flow requirements. So 80-90 day terms can make Tesla's financials look very different.
I think for most people, they expect that history repeats. But it doesn't, as much as it echoes... and smart people would take steps to avoid history from repeating. That doesn't mean that the Model 3 launch will go smoothly, but that if it doesn't, it is likely for reasons that aren't the same as the ones for the X. If you listen to the ER's, Musk, Straubel, and Wheeler all made these points. My biggest fear is that some supplier is still making the assumption that the Model 3 won't ramp aggressively... so they aren't putting in what is necessary to ramp, much like the situation in 2012/2013. Too many people across the industry is poo-pooing Tesla's ability to scale. I think Tesla's discussion around this at ER's and other venues is as much for those vendors as it is for us investors.