Are you concerned about Tesla's survival?

[Archduke]

Okay, because I know I'm probably going to be attacked by fanboys for merely suggesting that Tesla might not survive, let me start here: *I* am a Tesla fanboy. I lease a 2016 Model S P100D with Ludicrous mode. I absolutely love the car. I sing its praises to anyone who will listen. And I love being a bit of an evangelist for electric vehicles because, in my opinion, they beat cars with internal combustion engines in almost every category. And, in case someone accuses me of being a short seller (as I often see happening in these forums), I have no idea if I own Tesla stock or not. My portfolio is managed for me. I don't own many individual stocks; the portfolio is mainly managed funds composed of many stocks.

I'm posting this question because I'm beginning to be deeply concerned about the company's future. And it's really bumming me out. As we all know, Tesla struggled to get to the point where they can produce 5000 Model 3's per week. They got there. But not with the $35,000 model they promised. They're only producing Model 3's that are much more expensive than that. And the Model 3 reservation holders are (I would guess) largely a group of people who are more price sensitive than those of us who own Model S and Model X cars. So that hasn't looked optimistic to me for weeks.

And now, today, they announce the largest quarterly loss in the company's history. I just don't see how this can continue. It makes me ***really*** sad and a little bit anxious to think this company might not make it. The very last thing I want is to go back to a gasoline powered car. But I also don't want to drive any of the other electric cars on offer like the Nissan Leaf, BMW i3, etc...

Does anyone else out there share my concern?

 

[BluestarE3]

No.

 

[Kuhz]

No.

 

[glide]

Anyone with a brain should share your concern. It’s not a sure thing that they will make it.

Plenty of companies with great ideas and great products go under for a variety of reasons. The next few quarters will be important.

 

[suwaneedad]

@Archduke, while I hear you, today's numbers are the most promising yet released by Tesla since it began Model 3 development several years ago. I am an admitted FanBoy and also have a small long position, in the interest of full disclosure. But my background is accounting/finance, and trust that yours is not. It's in that spirit that I'm typing what follows...

As a student of financial statements for 30+ years, there's little figure with less meaning than net income. It's simply too easily managed, and too much a derivative of arcane accounting rules, to hold any relevance to me when assessing the solvency of a company. And your concern is fundamentally about solvency and the spectre that Tesla may cease to exist.

Free cash flow is king. FCF is operating cash flow minus capital expenditures. Granted, these figures can be fraudulently managed (see WorldCom), but unless you're concerned about Deepak's morals, FCF is the main metric for you to observe over time, alongside debt service cash obligations and upcoming debt maturities that need to be reckoned with (refinanced or converted to equity).

For me, the MAIN positive surprise today was the reduction in cash burn rate during Q2. I would have bet my house that it would be the worst, both due to rampant spend to maximize production and due to holding inventory cars rather than selling them prior to June 30 (the sale converts the metal and plastic and rubber back into positive cash flow). But it was not the worst, and in fact sets the table nicely for a HUGE free positive cash flow number in Q3, as the higher production volume stabilizes (its growth rate will be modest in Q3/4 relative to its growth rate within Q2), as the huge inventory number at June 30 flips around in favor of Tesla, and as continued moderation of capex spend continues as being shepherded by Deepak.

And as Model 3 gross margins continue to climb toward those of Models S/X, and ultimately beyond, it creates space to very profitably produce and sell the $35k base version beginning in America sometime in 2019.

So in summary, I've never been more confident about Tesla's prospects than I am after studying today's financial release and accompanying conference call commentary. And even if Tesla eventually fails due to mismanagement or the competition catching up, what I hope we are all confident in by now is that EVs are finally here to stay, thanks to Tesla Motors. Such a treat to be a part of the first massive shift in private transportation in our lifetimes.

 

[ronm2948]

Don’t pay attention to the quarterly reports, or the doomsayer clickbait articles. I think the stock price is the best barometer of the future potential of a company. Analysts who devote their whole lives following Tesla guide the stock price through buying and selling shares. While the stock is very volatile, and it is off its all time highs, Tesla still has a market valuation higher than that of Ford. And as for the quarterly report that seems to have worried you, it doesn’t seem to have worried the analysts. Tesla’s stock is up almost 10% in after hours trading after the release of the quarterly report.

 

[Petra]

The long term survival of the company has always been somewhat of a concern, especially given Elon's 'bet the farm' approach to things. However, between the investor update letter and the call today, I see it as less of a concern than before because the path forward is much more concrete now. That said, things will get bumpy if, through mismanagement or otherwise, they blow it in Q3/Q4.

 

[The Duke]

*I* am a Tesla fanboy

Buy a P100D for yourself and a performance model 3 for your wife. Tesla will be fine if all the "concerned fanboys" buy cars.

 

[mspohr]

No.

 

[Boourns]

No.

 

[ke6jph]

No

 

[P85_DA]

Does anyone else out there share my concern?

No ..you should have made this a poll

 

[thecloud]

No.

 

[Archduke]

I want to jump in and thank you all for your comments (and I hope others will continue to weigh in).

@suwaneedad, as you correctly guessed, I am *not* in the financial field. But I am very appreciative of those of you, like yourself, who can help make sense of it for me. So thank you for your detailed and thoughtful reply. I posted after quickly reading an article that stated Tesla reported the biggest quarterly loss in its history--which I confused with cash burn rate. That made me very alarmed. I understand it a little better now that I've read your response. I hope your optimism proves to have been correct. If Tesla had to close its doors, I think I'd have to find a cave where I could retreat and just rock back and forth for a few days glassy eyed while I absorbed the news. Let's hope it doesn't come to that! I also hope you are correct that EVs are here to stay. When I have to get behind the wheel of a gasoline powered car (rental, etc...) I gnash my teeth because the experience is so unpleasant compared to my Tesla!

@ronm2948, I did notice the stock had gone up but didn't understand why. I think suwaneedad's response cleared that up for me.

@Petra Q3/Q4 reports will be awfully interesting! Glad the investor letter and update made you feel more confident and hope you are right!

@The Duke, I am leasing a P100DL. I got burned by Fisker years ago, so the idea of buying another car from a startup company--particularly a car that topped $150,000--made me a little queasy. Leasing allowed me to get into the car without worrying so much about the viability of the company. But now I love the car and can't imagine a) not being able to purchase it or b) not being able to hand it in and get a new one at the end of the lease. I'd get a second Tesla for my wife, but (this might get a little awkward) I'm single and gay, gay, gay, gay, gay, gay, gay. If you know any nice guys...

 

[jelloslug]

No.

 

[Archduke]

No ..you should have made this a poll

Didn't even occur to me, but it's a good idea (although I do like reading forum members' reasoning better than simply getting a yes/no answer). Can any of the moderators turn this post into a poll?

 

[T34ME]

I am concerned about a lot of things, but primarily if the sun will rise tomorrow morning.

 

[RayW]

TSLA up +9% after hours.... you should be more concerned about the shorts

 

[TES-E]

Not concerned.

 

[theschnell]

Been following Tesla since early 2014. First investment March of 2014. Currently the least concerned I have EVER been regarding Tesla's odds of long-term survival.