Not an owner yet, but hoping to be soon and have an almost forever car. Was just thinking about it, part of my decision making - Lots of concerns out there about their cash flows, ongoing operations, competition coming from every major auto maker. What if Tesla does fail, ceases operations.....These cars are just a rolling battery pack controlled by the magical Tesla software, maybe their most valuable asset. Who updates the software, or even maintains it? Do we have a totally bricked $50k battery?
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Bankrupt Tesla = Bricked Tesla?
- Thread starter MikeC24
- Start date
EVNow
Well-Known Member
There is zero chance of a bankrupt Tesla. It is such a valuable brand with great products, there will be a long line of companies wanting to take over, long before that happens.
Silicon Desert
Well-Known Member
Ok, who updates the sophisticated software in the ICE cars after they roll off the dealer lot when you buy it? No one at present, yet they keep running for decades.
Agreed. There is absolutely no way the Tesla brand would ever go away. If sh!t hit the fan, there is a long line of companies that would gobble them up. Just look at VW’s supposed offer to invest $30B when Elon was smoking that “take them private” crack.
You have to learn to read articles about Tesla, none of them is accurate and lots (if not most) are ridiculous.
For example Jalopnik yesterday
" Elon Musk Says Tesla Needs Financial Micromanagement or It Will Go Broke"
'Musk stated that if the company’s Q1 losses of $700 million were to extend through the year, the company would be out of money within 10 months. Despite recently closing a $2.7 billion offering of stock and convertible notes, the company currently only has reserves of $2.2 billion. "
The facts are
- Musk said IF we lose that much, he did not imply he expects that. Q1 was a 700 million loss because Tesla only delivered 63k units and they had lots of 1 time items. For Q2 the outlook is deliveries up 50%. Granted, Model 3 margins will be much lower as mix will be hard down. One time items are 1 time items, they don't show up every quarter.
- Musk's math is false too, GAAP net income and cash flow are very different things.
- Tesla had 2.2 billion at end of Q1 and after raising 2.7B (2.4B net), they should have 4.5-5B on hand
That's the press, there are haters and so on but even the most reputable publications are not factually accurate, not objective and not informed.
If Model 3 demand is very weak and they can't do enough to stimulate demand to get it to acceptable levels, they would have 2-3 problematic quarters after the current quarter but they would just convert some M3 lines to Model Y early next year when MY starts production. Wouldn't be ideal but at least they have that flexibility.
In pure theory, if Tesla goes down, since nobody has yet made any good EVs, the value of the car might actually go up. Others will need 4-5 years to get to where Tesla is today and they might not even try to. if Tesla is gone.
For example Jalopnik yesterday
" Elon Musk Says Tesla Needs Financial Micromanagement or It Will Go Broke"
'Musk stated that if the company’s Q1 losses of $700 million were to extend through the year, the company would be out of money within 10 months. Despite recently closing a $2.7 billion offering of stock and convertible notes, the company currently only has reserves of $2.2 billion. "
The facts are
- Musk said IF we lose that much, he did not imply he expects that. Q1 was a 700 million loss because Tesla only delivered 63k units and they had lots of 1 time items. For Q2 the outlook is deliveries up 50%. Granted, Model 3 margins will be much lower as mix will be hard down. One time items are 1 time items, they don't show up every quarter.
- Musk's math is false too, GAAP net income and cash flow are very different things.
- Tesla had 2.2 billion at end of Q1 and after raising 2.7B (2.4B net), they should have 4.5-5B on hand
That's the press, there are haters and so on but even the most reputable publications are not factually accurate, not objective and not informed.
If Model 3 demand is very weak and they can't do enough to stimulate demand to get it to acceptable levels, they would have 2-3 problematic quarters after the current quarter but they would just convert some M3 lines to Model Y early next year when MY starts production. Wouldn't be ideal but at least they have that flexibility.
In pure theory, if Tesla goes down, since nobody has yet made any good EVs, the value of the car might actually go up. Others will need 4-5 years to get to where Tesla is today and they might not even try to. if Tesla is gone.
Silicon Desert
Well-Known Member
I like the comments. Agree. Just to say that it isn't all hate. My view is the media sells the most advertising by generating controversial stories, crime, violence, and other things that get readers to click on the stories or watch the videos that create money for them. So yes, they exaggerate and focus on negative press to try and get our attention. The problem is people keep looking at that crap and as long as people do, the media will keep creating crap. Stop watching it and reading it.
The hate for Tesla is understandable. After all, they are made in that detestable California, which is third to only NY and that country South of us on the hate scale. Americans root for car manufacturers in Europe and Asia and that state that Woody Hayes loved, which is doing the American thing by banning that Californicate company.
Tesla is done. Buy a BMW.
Tesla is done. Buy a BMW.
I think the debt load makes that somewhat unlikely (but I am not a financial person so I just approach this from common wisdom point).
Also my primary concern in the catastrophic "Tesla is liquidated" scenario is not the cars (there's enough of external knowhow and stuff to be recovered in the liquidation sale that they'd do ok, outside of some significant depreciation hit at first) is the supercharger network.
I fear it'll quickly disintegrate into a bunch of disconnected islands with the most important (and most unprofitable) superchargers in the rural areas (that are super important for traveling long distances) would disappear and the various densely populated locations taken over by nearby business hoping to attract rich people that would spend a bunch of time there.
I look at their value in the stock market (currently way down but still at $37 billion), and that says to me there is a lot of value there, even if they haven’t figured out how to be reliably profitable yet. It is entirely possible that Tesla might go bankrupt, but as others have said, the company will live on in one way or another.
I am a financial person. I can give you an absolute guarantee that even if Tesla declares bankruptcy (which is extremely unlikely) they would continue operations, "chapter 13 reorganization" style -- the stockholders would lose out, but someone else would take over the company, whether Apple or Google or Geely or Amazon, and keep running it.
There is ZERO chance of liquidation. The company is far too valuable for anyone to allow it to be liquidated. Corporate liquidations essentially never happen these days -- the company's product would have to be worthless for a liquidation to happen, and I think you agree that the product is valuable.
The Supercharger network in particular would be an asset anyone would grab.
Zero chance, don't worry about it. This is advice from someone who has followed a lot of corporate bankruptcies and reorganizations. Your worries are unfounded.
EVNow
Well-Known Member
Tesla doesn't have much debt.
The correct way to think about it is this.
- Regulations will only get tougher, the world over
- EVs are the only game in town
- Tesla makes the best EVs
You don't need to know anything else to know Tesla is in great shape. Don't fall for the FUD.
Usual rules don't seem to apply to Tesla. When I was hedging against these risk factors back in March 2018 with a lease lots of people told me it was a mistake and I should buy instead otherwise it's a lot of money wasted (apparently people don't know what an insurance is?)
It sure did look like an expensive insurance (total cost $7500 loss of the fed credit + the lease "rent" of $8709). But suddenly the tables have turned in Jan 2019 and now the lease looks like an excellent deal that nicely protected me against quite a bit of depreciation.
So I just checked and they were 12B in debt on March 31st 2019 and added like 2.5B just recently. Tesla Total Long Term Debt (Quarterly)
That's quite a bit of debt. That does not count the short term debt that they owe to their suppliers.
While this istrue to a big degree, it does not matter if they cannot make them profitably. Way too many makers of great products went under because they did not make any money. There's even this old joke about selling $1 bills for 80 cents after all.
EVNow
Well-Known Member
They do make them profitably- they have very good margins. They just need to increase the production. You should checkout the near future finance thread.
Lots of leases etc. They have funded a lot of their expansion in the past through equity.oh? And then they lose money why R&D and capex spending seem to be really-really low in the past few quarters? Did you fall into the trap of just believing their stated numbers?
That's a novel way to make money when you already have a bunch of inventory and need to drop price to move it, I guess.
I find finance sub here waaaay too optimistic to the point of being almost entirely divorced from reality.
Thinking about all these things is somewhat depressing, but it's the responsible thing to do.
I am not sure how this is relevant. Equity is stock. We are discussing debt here.
EVNow
Well-Known Member
I know you said you are not a finance person, but it's not that difficult to understand. They have about 1.3B in fixed costs per quarter. When they produce enough cars, they make enough gross profit to cover the fixed costs. Otherwise, they make a loss. Check out my estimates in the finance thread. You can also look at luvb2b's detailed model.
This is of course rough estimate, small changes in ASP and margins can make a difference.
If you are worried about bankruptcy, I'd be more worried about the legacy car makers, who are years behind Tesla in building EVs, are saddled with soon to be useless assets and technology for building ICE cars, and are stuck selling through expensive dealer networks. Many of them are already starting to feel the heat, and could be dropping like flies in a few years.
I am quoting the logical gap you seem to be having.
Producing the cars does not make money. In order to make money not only you need to make the cars, you must sell them (at a profit, hopefully) first!
You don't need to be a finance person to understand this simple thing. If the cars are not selling, ASPs do not matter (I don't even know if you include all the frequent repairs in your calculations, that's a second order stuff that's not important if the cars are not selling first).
The problem that could be trivially observed with Tesla is inventory buildup. That means they sell less cars than they make. Therefore it makes no sense to make more cars. Therefore they are not making any more cars than they do and instead it even makes sense to make fewer cars!. In fact... it appears that's exactly what they are doing (esp. on the S/X front where they supposedly have the best margins).
Of course since Tesla is paying their suppliers in arrears, this all creates another problem, where the increasing sales cashflow lets them pay off older amounts due easily, as the sales go down - so does the cashflow and suddenly they need to pay way more to suppliers than they are making on sales. This is just basic personal financing with some minimal differences.
The whole "we must really conserve cash" email from Elon the other day is just another sign they are really show on cash, why do you think that is? Because they are really flush with cash?
Anyway, don't want to attract any moderator ire for posting this stuff in the wrong place.
Why should we care about hem though? Their cars have a lot of parts by third parties. They have independent refueling network, independent service shops, in general don't depend on OTA updates and server side functionality provided by the car vendors themselves.
In other words, who cares if they go bankrupt, when their cars would still work perfectly. This is not the case with Tesla, though.
I have owned GM products since 1996, even though I own 3 GM products still I am more worried about them tanking. They are headed very truck heavy and if oil spikes before they get their EV lines going they are toast.
Right now gas is cheap, something will happen to spike oil again and EV sales will ratchet up.
Right now gas is cheap, something will happen to spike oil again and EV sales will ratchet up.
Similar threads
