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Tesla financial situation with DOE loan

Discussion in 'Tesla Motors' started by jhs_7645, Nov 23, 2012.

  1. jhs_7645

    jhs_7645 VIN: #3305

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    Not a sig holder, but chiming in anyway (so feel free to ignore my opinion). While I believe Tesla has always had good intentions there has obviously *always* been a balancing act between their ability to provide their customers with everything the customers need/want and Tesla's financial ability to do so. It seems to me that Tesla is walking the finest of lines financially, and likely priced the sig so that they could actually fund not just the car, but the ramp up in delivery specialists, production, etc... while using up almost all of their capital. I just don't see how they could have 'ignored the bean counters' without sacrificing *something*... where would you propose they cut spending? Have you seen examples of spending that seems out of line with a company trying to plan for the future and manage the present? I sure haven't. What I see is a company doing amazing things with so very little.
     
  2. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    This was well covered back when they announced the pricing, but as others have pointed out, Sigs are fully loaded cars. Assuming Tesla is making money on each option, they already should be making a tidy profit on each Sig sold without the Sig premium. Had there been no markup and no discount, I think the backlash would have been significantly less than what they've gotten.

    As for needing cash, they've got the government loan, not to mention opening tons of stores all over the place. These stores are generally stated to be opening to encourage people to use/like/try EVs, which is the same issue I addressed. I don't know the exact cost of opening a store, but I bet if they delayed one or two store openings, which only intend to drive demand which Tesla doesn't need in the short run, it would easily have saved the few million extra they're making off of the Sig premium. And, it wouldn't have required to resources to find locations, source the stores, get them built, and staff and open them. Sorry, but claiming poverty for Tesla so they needed to charge Sigs extra doesn't hold water.

    - - - Updated - - -

    I don't think this is the argument, but things like 19" wheels vs. 21" wheels, twin chargers and one or two other options that were standard on the Sigs would bring the cost differential up pretty quickly to the $7k to $10k range for an otherwise comparable car.
     
  3. Norbert

    Norbert TSLA will win

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    It appears you are missing a few facts here. If the government loan had been sufficient to address their financial situation, then they would not have needed the recent capital raise. Which, by the way, diluted my investment in TSLA, so it is *not* like the sig holders would be the only ones paying a "tax". And I didn't even have a choice!

    I'm guessing you might not have seen the video of Elon's talk in which he said that it was in question that they make it through the next few months (at that time).

    You might have missed the (probably still) not-so-small number of industry experts having more than doubts that Tesla will be able to survive as a independent company, or that they would be able to reach a production rate of thousands of cars per year.

    One of the strongest factors for experts having doubt about Tesla's ability to survive is that of continued demand following the initial reservation list. That's why the stores are important.

    You must be extremely ignorant of Tesla's situation to write that such arguments wouldn't "hold water".
     
  4. ckessel

    ckessel Active Member

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    Elon has said repeatedly Tesla would have survived without the government loan.
     
  5. Norbert

    Norbert TSLA will win

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    #5 Norbert, Nov 23, 2012
    Last edited: Nov 23, 2012
    The government loan was long ago and is not related to the situation in 2012 (except that they need to start paying it back).

    EDIT: Elon's talk, which I am referring to above, is from mid-2012 or a bit later.

    - - - Updated - - -

    And, by the way, did anyone here notice that Tesla told their delivery specialists that they should be prepared to work 7-day weeks throughout Q1 2013?

    Why would they do that, may I ask?
     
  6. ckessel

    ckessel Active Member

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    The situation is about finances, yes? 2012 doesn't live in isolation. How do you discuss Tesla's financial management that led to today's situation without considering how they have handled 465 million Elon has said wasn't even strictly required?

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    Because they failed to plan their staffing timelines.
     
  7. Krugerrand

    Krugerrand Active Member

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    He did say that, but he also said something else too...that if they hadn't gotten that loan, they wouldn't be nearly as far ahead. In other words, they wouldn't own the NUMMI plant now greatly renovated, partially filled with state-of-the-art robots and press lines, they wouldn't be pumping out their current rate of Model S, they wouldn't be opening stores and service centres at their current rate, they wouldn't have announced the Supercharger stations, most US Sig holders would still be waiting for their cars instead of a handful, and so on.

    He also said they didn't 'need' the second offering money, but that that money was for 'insurance' in case something unexpected came along, and so that they could continue to forge ahead at full speed and get back to R&D for the X and subsequent models a.s.a.p.

    There's more than one way to survive. Personally, I'm all for the head down, full speed ahead approach for this 'bigger than us situation', even if a few people get upset along the way.
     
  8. ckessel

    ckessel Active Member

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    #8 ckessel, Nov 23, 2012
    Last edited: Nov 23, 2012
    Yep, that's sort of my point. Tesla spent a bunch of money in various ways so the argument that they didn't hire sufficient support staff (e.g. Delivery Specialists) or had to do the Sig surcharge to survive doesn't hold much water. They chose to prioritize their spending in this way. It wasn't a matter of desperation survival since they actually had enough money to purposefully pick what they spent on.

    And maybe it's the right thing. I'm not fond of some of those choices such as the Sig surcharge, but I don't have to be and I'm not particularly bothered by them. I'll argue my thoughts on their merits, but at the end of the day it's sort of an academic discussion rather than one of passion.

    I'm only taking exception that theory that the actions were born of survival "desperation". The history of when they got money and how they spent it over the last few years doesn't support that theory. Unless someone wants to argue they incompetently bungled their way into the current problems, but I don't really see it that way.
     
  9. Shorty

    Shorty Member

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    @Norbert

    If Tesla rasied money at market value then your investment isn't diluted and the value of your stock isn't impacted.

    Companies raise money all of the time and there is no better time to get dough then when the market is frothy and your stock price is high. If they didn't plan to use the money then that is one thing but using it for growth or to pay back higher interest debt is very prudent.
     
  10. Norbert

    Norbert TSLA will win

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    Agree with Krugerrand's explanation, and would like to highlight that the statement was that the loan wasn't necessary to survive *at that time*. But only because they received an investment from Daimler a bit earlier. Without either investment (and any other), they would not have.

    If it were just the timeline, then they could have meanwhile addressed it. At least I don't see why not.
     
  11. Krugerrand

    Krugerrand Active Member

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    Well, there's another way to look at it...they didn't hire sufficient support staff because they simply didn't realize they were going to need that many bodies. Or, maybe they did hire enough but it took longer to train, or a significant amount of those hires turned out to be duds, or individually they weren't prepared for the workload and decided to bail, or, or, or. It doesn't have to be just one reason for the issue, it can be and probably is, a combination.

    Never forget this is a 'first time around' in an unfriendly and extremely difficult industry. You can't compare the ramp and deployment of Roadster to the ramp and deployment of Model S. That's like saying running your kid's lemonade stand is like running Hostess. (Okay, maybe Hostess is a bad example. :tongue:)
     
  12. Norbert

    Norbert TSLA will win

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    I'm not saying it was wrong to make that offering. I'm assuming it was necessary. But it means that the future value of Tesla will be distributed among a larger number of shares. (Which is why it's called dilution). So I'd have preferred if it hadn't been necessary. It was made to avoid a financial difficulty/risk, and became necessary because of supplier/production problems delaying delivery, and so needed to make up for lost revenue. Perhaps some of it can be used for growth, and that would be good.
     
  13. Shorty

    Shorty Member

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    If Tesla has 100 shares and the value of the company is $1,000 then the shares are worth $10 ea. If Tesla issues 100 new shares at $10 ea then there are now 200 outstanding but the value of the company is $2,000 so your share is still worth $10. Now you can argue that Tesla will spend the money that they have raised in a way that does not proportionally increase the overall value of the enterprise but that is a different argument.
     
  14. Norbert

    Norbert TSLA will win

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    I'm not very interested in the difference in current value between $1,000 and $2,000, as I am investing long-term. The eventual value in a few years may be determined more by a ceiling than by current investments, especially in so far as they only make up for lost revenue.
     
  15. aviators99

    aviators99 Model S - R140

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    Of course his holdings were diluted! It's the definition of dilution. A major factor in deciding the value of a stock is a combination of various performance metrics of the company, divided by the number of shares outstanding. This should affect the stock price immediately after the money raise closes, and would show up immediately if not for other market forces. It will certainly show up when someone makes an offer to buy the company, because they need to buy more shares. You cannot possibly argue that his holdings were not diluted.
     
  16. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    Nope, I'm not missing any facts, and your lack of logic indicates that you are blindly arguing a point without understanding what I was addressing.

    Why are these mutually exclusive? And how is stock dilution like paying a "tax"? And your choice was not to buy stock, just like I had a choice not to buy a Sig, and as a stockholder you are always subject to dilution. I don't see the analogy or relevance to what I was arguing, which was that *despite* the short term financial benefit of the Sig premium, long term it will cost Tesla more.

    Saw the video. You apparently don't understand how this Sig premium works. The $40k deposits were already made, and would have been the same whatever the pricing was. Although theoretically Tesla could use the cash (except in Washington state), they couldn't recognize the revenue until the cars were delivered. The premium isn't paid until the balance of the car is paid upon delivery, so the fact that a few months ago the company was cash poor doesn't correlate to these premiums, which they've only now collected in large part the last few weeks.

    A total non-sequitur -- what relevance does this have? Wouldn't it help Tesla's prospects to have 100% thrilled early customers singing its praises instead of lamenting about paying extra for little discernible benefit? Is the implication that no one should offer criticism because it may hurt the stock price?

    I understand why the stores are important. But I also think that early (Sig) reservation holders are important to helping with continued demand for Tesla, and the question I was answering was what spending did Tesla do that they could have avoided (or delayed) to avoid requiring the Sig premium. My response was that delaying one or two store openings would have equaled the total premiums Tesla is getting from its Sig owners, and doing so would have avoided a lot of the frustration, anger and resentment that Sig owners have experienced and articulated over the last couple of months, which would have really helped Tesla's long term prospects more than the few million extra dollars Tesla is collecting *now* from these folks.

    If the goal is for Tesla's long term success, my point was that the extra money from the Sig premium was not worth the ill will it apparently fomented. You may disagree, but I don't see how that makes me extremely ignorant. You seem unusually angry about this, which I guess is because of the stock price? I hope you calling me extremely ignorant helped you feel better, but random insults hurled online don't change the facts or circumstances.
     
  17. Norbert

    Norbert TSLA will win

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    #17 Norbert, Nov 23, 2012
    Last edited: Nov 23, 2012
    I don't feel this is substantiated by your following arguments.

    Either they need cash or not. The capital raise shows that they still needed capital even after the loan (in this case used as a cushion, which is something necessary to have if you don't want to risk the company).

    If the number of stocks you own remains the same, a stock dilution results in a loss of value, at least in terms of percentage of all shares, but that is a different question. I'm assuming that the absolute long-term value of Tesla will be quite independent of current investments, as long as Tesla survives. In that assumption, I lost value.

    Sig owners have the choice between buying a Sig, and buying an almost identical non-Sig, and you were able to change from one to the other. I can only buy one kind of shares, and already had them long before.

    And? Was Tesla's survival said to be in question, or not?

    [EDIT: See "addendum" immediately below instead of the 2 sentences I originally wrote here.]

    Our point is that Tesla's financial means are limited. Sure Tesla has sources of income, including the loan and sig premiums, but we are saying that they are still very limited.

    If you accept and agree with the argument that Tesla's financial resources are so limited that they may cause a limit in staffing, or charge more for sigs, you can still argue that they were limiting costs or adding profit in the wrong places, or you can still criticize them for not having enough financial resources in the first place. The possibilities for criticism are still endless, but it may help to understand the situation. So far you don't seem to accept the possibility that financial limits may have been forcing reasons.

    That's a similar argument as I understood it before. My answer is that the stores may be necessary for survival, whereas sig holders good will is important, yet expected to be balanced by the higher than expected value of the car, once delivered. Obviously, it would be much better to have both, but then again, that is where the financial limits come in. I would totally agree with your position if Tesla had already been a profit making company with ensured survival.

    I even agree that it was not worth the money. You still don't seem to accept the possibility that Tesla saw themselves *forced* to make these decisions, regardless of something being "worth" some amount of money.

    I'm not sure why you feel free to use terms such as "bean counter" and then complain about "being ignorant of a situation", which is not a characterization of your personality, and certainly not in general, but merely points out that you are not accepting the question of Tesla's survival to enter this discussion.
     
  18. Norbert

    Norbert TSLA will win

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    ---- Addendum to my previous message:

    I may have I figured out what you were trying to say when you were talking about the difference between sig premiums and $40k deposits and so forth: That the pricing decision was made end of 2011, whereas the critical time for Tesla's survival was said to be mid-2012 and later, during the ramp up.

    While it is of course true that *unexpected* events in mid-2012, and later, were unknown in 2011, their *possibility* was already known end of 2011.

    The events in mid-2012, and later, *prove* that *concerns* about their possibility was justified already end of 2011.

    Also, those events, as they came closer and then happened, may very well have affected the hiring of delivery specialists. Maybe this answers a misunderstanding.
     
  19. ckessel

    ckessel Active Member

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    So, you're saying at the end of 2011 Tesla had hints of the possibilities that a supplier delay 10 months later meant they should avoid hiring delivery specialists in 2012 Q1/Q2? That's quite the crystal ball.

    Though they spent money on stores even though Tesla has said repeatedly they don't have a near-term demand problem. And super chargers even though they don't have a near term demand for those until deliveries start in bulk. And the Model X even though it doesn't generate revenue for a couple years.

    But didn't hire delivery specialists because they knew they'd need money after funding all those other things, money that can only be recognized on delivery...which requires a delivery specialist.
     
  20. Norbert

    Norbert TSLA will win

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    Basically, yes, of course. They already knew end of 2011 that financials would get very tight in 2012 *if* things didn't go well. No crystal ball needed.

    However, they might not have anticipated the additional need for communication staff caused by the delays. (Which is what this thread is about).

    There is no point (for Tesla) in surviving short-term if they can't survive long-term. Therefore I think they did everything that is necessary, but tried to keep the costs at a minimum, in each area.

    They not only limited staff for communication, but for example, they also built only enough SuperChargers for an example route along 5 in California, but nowhere else (yet). They also didn't build as many stores as they would like to have, but started building them one-by-one so that they eventually have as many as they think are helpful, and for Model X, probably limited things very much to design and early R&D, until after Model S production is steady state.

    Perhaps also, as someone pointed out above, some delivery specialists might have quit due to workload…
     

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