Tesla’s Ambitions Fueled by Customer Down Payments
By PETER EAVIS
After reading about Tesla Motors’ new electric sedan three years ago, Rob Stelling drove 100 miles to the carmaker’s showroom in Menlo Park, Calif., and put down $40,000 in cash to make an early reservation for the Model S.
“It took them 20 minutes to count it,” said Mr. Stelling, a clinical laboratory scientist from St. Helena, Calif., who expects the car to be delivered this summer. “Tesla’s the only company that makes a premium, no-compromise electric car.”
Customers like Mr. Stelling have become an important source of cash for Tesla, which collected $61 million of down payments in 2011, up from $5 million in 2010
Like many clean-energy start-ups with ambitious goals, Tesla is consuming large amounts of money as it develops its electric cars. For most of its nine-year existence, the carmaker, whose earlier Roadster sports car attracted the likes of George Clooney and will.i.am of the Black Eyed Peas, has mainly relied on the federal government and stock investors for funds.
Now, Tesla is increasingly using customer down payments to finance operations. Without the deposits, the company’s operations would have consumed $175 million of cash last year instead of $114 million.
But that money could dry up if the company experiences production delays or other bumps in the road. Then Tesla would be more reliant on a clean-energy loan from the government. The federal program is facing increased scrutiny after the solar panel maker Solyndra collapsed last year, exposing the government to big losses on its loan to the company.
For now, the flood of customer cash reflects the strong demand for the Model S, which Tesla says will be able to go from zero to 60 miles per hour in 5.6 seconds. More than 8,000 consumers have plunked down money to reserve one of the sedans, with some signing up years before its expected release this summer. Earlier this year, Tesla started taking down payments for the Model X, a gull-winged sport utility vehicle that is expected to be released in 2014.
“Tesla seems to have a business model that’s going to work,” said Jesse Pichel, an analyst at Jefferies & Company, a brokerage firm. Mr. Pichel’s first research report on Tesla was titled “If Apple Made a Car, This Could Be It!”
The deposit on the basic Model S sedan, which is projected to cost about $57,000 before tax credits, is roughly $5,000. Customized versions require down payments of tens of thousands of dollars.
But consumer cash — at least before the cars are rolling off the production line — may not be a reliable source of financing.
Customers can pull back their deposits at anytime since Tesla has not required them to sign purchase agreements. The company plans to get official contracts after the beginning of production of the Model S, which is scheduled for the middle of this year.
If there are production hiccups, some buyers may have second thoughts and ask for refunds. The Roadster was delayed for several months.
A Tesla spokesman, Ricardo Reyes, says he still expects the first Model S deliveries to take place on schedule in July. And some customers welcome a short delay. “It’ll give me more time to save the money,” said Patrick A. Lynch, a lawyer from Providence, R.I., who put down $5,000 in February on the sedan.
Contract or not, customers may not have much protection should Tesla face a cash crunch.
Once deposited with the company, Tesla can use the bulk of the money to finance its regular operations, rather than walling it off in segregated accounts. If the company runs into real financial trouble, customers may not be able to recover their money because they will be behind major creditors like the federal government.
Tesla itself discusses the risks of not segregating its cash in its latest annual report. For instance, the company says it has to separate funds that come from customers in Washington State, so far a relatively small market for the company.
In the annual report, Tesla adds: “There can be no assurance that other state or foreign jurisdictions will not require similar segregation of reservation payment received from customers. Our inability to access these funds for working capital purposes could harm our liquidity.”
For now, Tesla’s practice does not seem under threat in California, its biggest source of down payments. A spokesman for the state’s Department of Motor Vehicles said as long as the “reservation process is refundable,” the agency would not take action. Mr. Reyes said Tesla had adequate alternative sources of cash, including $189 million it can still tap on a federal loan.
And prospective customers — the ultimate arbiters of the company’s success — remain enthusiastic about Tesla’s products. Some say they don’t mind that the company is using their funds.
“At the end of the day,” Mr. Lynch said, “I really believe in what they’re trying to do.”
Teslas Ambitions Fueled by Customer Down Payments - NYTimes.com
By PETER EAVIS
After reading about Tesla Motors’ new electric sedan three years ago, Rob Stelling drove 100 miles to the carmaker’s showroom in Menlo Park, Calif., and put down $40,000 in cash to make an early reservation for the Model S.
“It took them 20 minutes to count it,” said Mr. Stelling, a clinical laboratory scientist from St. Helena, Calif., who expects the car to be delivered this summer. “Tesla’s the only company that makes a premium, no-compromise electric car.”
Customers like Mr. Stelling have become an important source of cash for Tesla, which collected $61 million of down payments in 2011, up from $5 million in 2010
Like many clean-energy start-ups with ambitious goals, Tesla is consuming large amounts of money as it develops its electric cars. For most of its nine-year existence, the carmaker, whose earlier Roadster sports car attracted the likes of George Clooney and will.i.am of the Black Eyed Peas, has mainly relied on the federal government and stock investors for funds.
Now, Tesla is increasingly using customer down payments to finance operations. Without the deposits, the company’s operations would have consumed $175 million of cash last year instead of $114 million.
But that money could dry up if the company experiences production delays or other bumps in the road. Then Tesla would be more reliant on a clean-energy loan from the government. The federal program is facing increased scrutiny after the solar panel maker Solyndra collapsed last year, exposing the government to big losses on its loan to the company.
For now, the flood of customer cash reflects the strong demand for the Model S, which Tesla says will be able to go from zero to 60 miles per hour in 5.6 seconds. More than 8,000 consumers have plunked down money to reserve one of the sedans, with some signing up years before its expected release this summer. Earlier this year, Tesla started taking down payments for the Model X, a gull-winged sport utility vehicle that is expected to be released in 2014.
“Tesla seems to have a business model that’s going to work,” said Jesse Pichel, an analyst at Jefferies & Company, a brokerage firm. Mr. Pichel’s first research report on Tesla was titled “If Apple Made a Car, This Could Be It!”
The deposit on the basic Model S sedan, which is projected to cost about $57,000 before tax credits, is roughly $5,000. Customized versions require down payments of tens of thousands of dollars.
But consumer cash — at least before the cars are rolling off the production line — may not be a reliable source of financing.
Customers can pull back their deposits at anytime since Tesla has not required them to sign purchase agreements. The company plans to get official contracts after the beginning of production of the Model S, which is scheduled for the middle of this year.
If there are production hiccups, some buyers may have second thoughts and ask for refunds. The Roadster was delayed for several months.
A Tesla spokesman, Ricardo Reyes, says he still expects the first Model S deliveries to take place on schedule in July. And some customers welcome a short delay. “It’ll give me more time to save the money,” said Patrick A. Lynch, a lawyer from Providence, R.I., who put down $5,000 in February on the sedan.
Contract or not, customers may not have much protection should Tesla face a cash crunch.
Once deposited with the company, Tesla can use the bulk of the money to finance its regular operations, rather than walling it off in segregated accounts. If the company runs into real financial trouble, customers may not be able to recover their money because they will be behind major creditors like the federal government.
Tesla itself discusses the risks of not segregating its cash in its latest annual report. For instance, the company says it has to separate funds that come from customers in Washington State, so far a relatively small market for the company.
In the annual report, Tesla adds: “There can be no assurance that other state or foreign jurisdictions will not require similar segregation of reservation payment received from customers. Our inability to access these funds for working capital purposes could harm our liquidity.”
For now, Tesla’s practice does not seem under threat in California, its biggest source of down payments. A spokesman for the state’s Department of Motor Vehicles said as long as the “reservation process is refundable,” the agency would not take action. Mr. Reyes said Tesla had adequate alternative sources of cash, including $189 million it can still tap on a federal loan.
And prospective customers — the ultimate arbiters of the company’s success — remain enthusiastic about Tesla’s products. Some say they don’t mind that the company is using their funds.
“At the end of the day,” Mr. Lynch said, “I really believe in what they’re trying to do.”
Teslas Ambitions Fueled by Customer Down Payments - NYTimes.com
