Bankrupt Tesla = Bricked Tesla?

[EVNow]

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.

I've replied to you in a new thread. Let us take the discussions there.

Tesla Production & Profitability

 

[EVNow]

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.

If they go bankrupt, so will their part makers.

 

[verygreen]

If they go bankrupt, so will their part makers.

Not really. You still can buy parts for cars of bankrupt vendors. See DMC as just one example.

 

[EinSV]

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.

Personally, I don't care about either one -- that's why I said "if you are worried about bankruptcy ...."

We seem to always get a bunch of threads like this whenever the stock price goes down or short sellers get excited and noisy. I think Tesla bankruptcy is a non-issue for reasons others have already mentioned.

 

[verygreen]

Personally, I don't care about either one -- that's why I said "if you are worried about bankruptcy ...."

We seem to always get a bunch of threads like this whenever the stock price goes down or short sellers get excited and noisy. I think Tesla bankruptcy is a non-issue for reasons others have already mentioned.

Again, Tesla situation is very unique due to all the platform lock-in they deliberately created. And as such if they do go down, it would be a much more adverse event compared to a regular (legacy?) automaker going down. So I totally understand why people feel nervous.

Tesla cars are a pretty expensive purchase for a lot of people so some research is very warranted. If you performed your research and don't think they will go bankrupt or that if they do it's a non issue - it's one thing. Telling people not to worry because others are in more danger is jsut wrong because of how different Tesla is which is something I am trying to point out.

 

[EinSV]

Again, Tesla situation is very unique due to all the platform lock-in they deliberately created. And as such if they do go down, it would be a much more adverse event compared to a regular (legacy?) automaker going down. So I totally understand why people feel nervous.

Tesla cars are a pretty expensive purchase for a lot of people so some research is very warranted. If you performed your research and don't think they will go bankrupt or that if they do it's a non issue - it's one thing. Telling people not to worry because others are in more danger is jsut wrong because of how different Tesla is which is something I am trying to point out.

I actually think fear-mongering about Tesla bankruptcy is wrong and mostly designed to harm the company, not protect people.

 

[verygreen]

I actually think fear-mongering about Tesla bankruptcy is wrong and mostly designed to harm the company, not protect people.

where's the fear mongering? A pretty valid question was asked. These questions are periodically being asked and they totally make sense in my view.

 

[Yeomen]

When and if they go BK that mostly will mean that the equity will be worth 0. If they can see it coming and are smart they will go chapter 11 which will 0 out the stock but allow the bond holders and BOD to do a reorganization of the capital structure and keep the company going. If Musk is truly nuts as the bears say than it will go Chapter 7 which will be more of a liquidation. But that can easily be avoided and there is no reason it should occur. Chapter 11 will keep your car in parts and service.

 

[FoverM]

Totally agree with @verygreen. I'm looking at buying a Tesla this year but am concerned, rightly or wrongly, about the future of the company and what that means for my car. I don't care about anything else: AGW, saving the world, a mission, etc. And I have very low demands on the vehicle. I run a software company from my house, so I don't need to commute. I can write a check for any Tesla. This is a specialized product, not a commodity, and it requires specialized service. That means its value can drop like a rock if there's a problem with the producer (and it becomes a tinkerer product). It's not like I can go to AutoZone and pick up a new battery pack or go to a local mechanic. Of course, with the volume of Tesla cars on the road, there might emerge service companies that can work with Teslas.

Against this downside, I like Musk and Tesla and see that they have the potential to completely dominate the auto industry in the future. The performance is outstanding, fewer moving parts, etc. But right now I feel like I'm buying more of a stock than a car!

PS. I want a Tesla because I want acceleration in a decent car. I don't care about all the other stuff.

 

[3Victoria]

Worrying about very low probability events is a waste of time. If you won't buy a Tesla because of this, then don't drive, fly, ice skate, be a pedestrian, swim, sail, etc. --- since those are much more risky. I love the "I don't know finance BUT" and then a number of improbablilities, all dressed up as 'common sense'. Rather reminds one of pseudo-science.

 

[banned-66611]

While it is unlikely that Tesla will go bankrupt, you have a legitimate concern about loss of functionality if they do. You can see how badly crippled non-approved repaired cars are, for example, and they still have some functionality like an active cellular connection. If Tesla goes bankrupt then the cell connection in your car will be terminated as the contract expires and there is no-one to pay it, and no servers for the car to talk to anyway.

 

[dark cloud]

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.

That is what I look at:
In March Tesla supercharger network opened 28 new superchargers
In April they opened 30
so far in may they have opened 14 in 19 days

There are plenty more currently under construction as well.

That is almost 1 a day over the past few months, and best estimates I found value the cost of each at about a quarter million. So Tesla is spending about 7 million a month on building the supercharger network globally. If there were a serious cash flow problem this might be the first place to see a slowdown.

Yet it is a drop in the bucket, when you consider the 2 billion they just received would fund this at the current rate for about another 24 years.

 

[azred]

Totally agree with @verygreen. I'm looking at buying a Tesla this year but am concerned, rightly or wrongly, about the future of the company and what that means for my car. I don't care about anything else: AGW, saving the world, a mission, etc. And I have very low demands on the vehicle. I run a software company from my house, so I don't need to commute. I can write a check for any Tesla. This is a specialized product, not a commodity, and it requires specialized service. That means its value can drop like a rock if there's a problem with the producer (and it becomes a tinkerer product). It's not like I can go to AutoZone and pick up a new battery pack or go to a local mechanic. Of course, with the volume of Tesla cars on the road, there might emerge service companies that can work with Teslas.

Against this downside, I like Musk and Tesla and see that they have the potential to completely dominate the auto industry in the future. The performance is outstanding, fewer moving parts, etc. But right now I feel like I'm buying more of a stock than a car!

PS. I want a Tesla because I want acceleration in a decent car. I don't care about all the other stuff.

Stay away from Tesla. Buying a well-equipped Tesla is easily $50k or much more. Anyone not a Tesla owner who is currently worried about Tesla’s survival is a fool to spend that kind of money on a Tesla — and you surely aren’t a fool.

As an aside, we love both of our Teslas and sleep well at night. Our cars are the least of our worries.

 

[mediaboy]

The charging network would be my only concern... and that's really not much of a concern. Model 3 is slightly greater risk due to the screen being the focal point of everything. I need a source for that particular computer / screen if mine screen goes bad.

As for the SC network - maybe they could sell that to another network if they do go belly up. I would really love to see SC v3 become a reality but its not a total deal killer for perspective buyer... electrify america , charge point ... all of that works too only slower .

 

[UNFAIR]

It’s a lot easier to write about ‘doom and gloom’ than positive outlooks. I mean look at the ratings for the news; “if it bleeds, it leads”.

I also think many of these blogs and “news sources” want to have bragging rights if the ish does actually hit the fan one day, they can claim they called it.

I’m also a future buyer (waiting on my current lease to expire) and I’m not worried in the least. I’ve seen countless headline about Tesla’s demise and they always pull through.

 

[dgatwood]

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.

The recent rumors of a Ford/GM merger certainly support that theory.

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).

This is true. The Model S and Model X are too expensive relative to the Model 3 and promised Model Y, so they're going to have to tighten up their margins and lower the cost, or else those product lines will pretty much dry up.

But if you're implying that they're seeing excessive inventory buildup on the Model 3, you're wrong. Sure, Tesla's total inventory doubled from Q1 2017 to Q1 2019. BUT Q1 2019 sales were 2.5x what they were in Q1 2017, so as a percentage of sales, they actually have less inventory now than they did two years ago. And that's including the temporary buildup of inventory in preparation for their launch in Europe.

No, these numbers only look bad if you don't know how to read them, or if you're trying to manipulate the stock price.

 

[verygreen]

It’s a lot easier to write about ‘doom and gloom’ than positive outlooks. I mean look at the ratings for the news; “if it bleeds, it leads”.

This must be why Tesla got so much of positive coverage in the past (like say 2014-2017 time period)

 

[Magellan55]

Let's say Tesla does go away (yes, really low probability) and isn't bought by another company. What's the worst that can happen?
- no more superchargers, or they go into disrepair. your Tesla becomes like any other EV you might be considering as an alternative. those with lifetime supercharging don't get it anymore. Big deal? Not really.
- Software. Your car becomes like all the other cars out there. Or your laptop that's still running Windows XP. and some enterprising SW shop will buy the source code in the fire sale and provide bug fixes for a fee.
- Service / parts. There are half a million Tesla's on the road now, in just 3 body styles. Plenty of parts makers and service shops will welcome the new business, buying Tesla's factory stuff for pennies on the dollar.
- Battery. Panasonic makes the batteries, and they aren't going anywhere.

The only unknown for me is what happens when there's no longer a mother ship for the car to phone home to. Do we lose LTE, navigation, etc? Does the car brick itself? I'm just not sure how much of the car's functionality is tied to the cloud.

 

[Webeevdrivers]

Let's say Tesla does go away (yes, really low probability) and isn't bought by another company. What's the worst that can happen?
- no more superchargers, or they go into disrepair. your Tesla becomes like any other EV you might be considering as an alternative. those with lifetime supercharging don't get it anymore. Big deal? Not really.
- Software. Your car becomes like all the other cars out there. Or your laptop that's still running Windows XP. and some enterprising SW shop will buy the source code in the fire sale and provide bug fixes for a fee.
- Service / parts. There are half a million Tesla's on the road now, in just 3 body styles. Plenty of parts makers and service shops will welcome the new business, buying Tesla's factory stuff for pennies on the dollar.
- Battery. Panasonic makes the batteries, and they aren't going anywhere.

The only unknown for me is what happens when there's no longer a mother ship for the car to phone home to. Do we lose LTE, navigation, etc? Does the car brick itself? I'm just not sure how much of the car's functionality is tied to the cloud.

Well, if it’s a model 3 it can no longer be fast charged anywhere. So no, it’s not like any other EV. It would have level 2 charging only.

And those driving model x or s would have to find a manufacturer of the Chademo adapter. Otherwise they two would be level 2 only.

 

[BoerumHill]

This is going to be an enjoyable climb.

Spoiler

Don't call it a comeback
I've been here for years
I'm rocking my peers
Puttin' suckers in fear
Makin' the tears rain down like a monsoon
Listen to the bass go boom
Explosions, overpowerin'
Over the competition I'm towerin'
Wrecking shop when I write these lyrics
That'll make you call the cops
Don't you dare stare, you better move
Don't ever compare
Me to the rest that'll all get sliced and diced
Competition's payin' the price
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
Don't you call this a regular jam
I'm gonna rock this land
I'm gonna take this itty-bitty world by storm
And I'm just gettin' warm
Just like Muhammed Ali
They called him Cassius
Watch me bash this beat like a skull
That you know I've beef with
Why do you riff with me
The maniac psycho
And when I pull out my jammy get ready
Cause I might go Blaw!
How you like me now?
The ripper will not allow
You to get with Mr. Swift or Rift,
Listen to my gears shift
I'm blasting, I'm blasting
Kinda like shaft, so you can say I'm shafting
Oh, English filled my mind, and I came up with a funky rhyme
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
Shadow boxing when I heard you on the radio, UH
I just don't know
What made you forget that I was raw
But now I gotta new tour
I'm going insane
Startin' the hurricane
Releasin' pain
Lettin' you know
You can't gain or maintain
Unless you say my name
Rippin'
Killin'
Diggin' and drillin' a hole
Pass the Old Gold
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
Shotgun blasts are heard
When I rip and kill at will
The man of the hour, tower of power
I'll devour
I'm gonna tie you up and let you understand
That I'm not your average man
When I gotta jammy in my hand
Damn!
Oh!
Listen to the way I slay
Your crew
Damage
Damage
Destruction, terror, and mayhem
Pass me a sissy so sucker I'll slay him
Farmers (what)
Farmers (what)
I'm ready (we're ready)
I think I'm gonna bomb a town
Get down
Don't you never, ever
Pull my lever
Cause I explode
And my nine is easy to load
I gotta thank God
'Cause he gave me the strength to rock Hard
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out
I'm gonna knock you out
Mama said knock you out