I know you have a source for the clam of 7 buildings. Did that source give any information about the size of this 7 buildings? All of them will be the same size/form and cost the same? Or will it be some big buildings, and a some smaller? From what has been said from Tesla this first building should be 20-25% of the total GF. If it represent 20-25% of the cost? I don't know...
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Tesla Gigafactory Investor Thread
- Thread starter teddyg
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I know you have a source for the clam of 7 buildings. Did that source give any information about the size of this 7 buildings? All of them will be the same size/form and cost the same? Or will it be some big buildings, and a some smaller? From what has been said from Tesla this first building should be 20-25% of the total GF. If it represent 20-25% of the cost? I don't know...
chickensevil
Active Member
TFTF, I think we both just have different views on the implications of raising capital both in the past and in the future. I would actually agree that it would be prudent to raise capital in 2016 and have even posted as much to how I think this will go down with them hitting their stated cash flows so it will cause a pop in the stock... knowing this is the most likely outcome of showing green returns on cash (because this is really all financial people seem to care about) then planning to do a capital raise at that time would make sense. Which is likely why they only got 750M$ when they knew they could have got more. Why not wait for us to be over 300$ a share and do another raise?
That being said, I don't think that the raise will be stated for the purpose of tooling for the M3 or completing the gigafactory (whether they end up using the funds for that or not is a whole other issue). I am sure they will say it is for building a factory in Europe and China, which is what they have been hinting as for a while. With a nice share price they can get as much money as they would want with minimal dilution and be able to further accelerate their growth toward the goal of "millions of cars" by 2025.
So I agree with the notion of a capital raise, I just disagree with the reason they will do it.
But to the previous cash raises (outside of the 2BN one) was all to help them accelerate that growth of the business to handle more than anticipated volumes on the S and X, and to lay the groundwork for the entirely new business of stationary storage along with the R&D costs of other things. Which is why the funding sources keep putting them back up decently so they still have the money when needed for the gigafactory.
It is a perspective thing, I suppose, you look at it through bear tinted glasses and I through bull tinted glasses. Not sure I see where they are doing anything *wrong* with how they have spent the money since they:
1: have the funds still to keep doing what they are doing
2: holding high GMs on the core business and the GMs for the rest isn't too bad either (meaning you could easily make money if you stopped growing the business so rapidly)
3: have no apparently demand issues for anything they make so anything they spend seems to be money well spent
If you aren't implying/stating that how they are spending the money is wrong then I am not sure what your argument is? Just that they spent money differently than you expected them to? OK. That if they want to continue to grow rapidly them might need more money in the future than they have on hand? I'm fine with that.
That being said, I don't think that the raise will be stated for the purpose of tooling for the M3 or completing the gigafactory (whether they end up using the funds for that or not is a whole other issue). I am sure they will say it is for building a factory in Europe and China, which is what they have been hinting as for a while. With a nice share price they can get as much money as they would want with minimal dilution and be able to further accelerate their growth toward the goal of "millions of cars" by 2025.
So I agree with the notion of a capital raise, I just disagree with the reason they will do it.
But to the previous cash raises (outside of the 2BN one) was all to help them accelerate that growth of the business to handle more than anticipated volumes on the S and X, and to lay the groundwork for the entirely new business of stationary storage along with the R&D costs of other things. Which is why the funding sources keep putting them back up decently so they still have the money when needed for the gigafactory.
It is a perspective thing, I suppose, you look at it through bear tinted glasses and I through bull tinted glasses. Not sure I see where they are doing anything *wrong* with how they have spent the money since they:
1: have the funds still to keep doing what they are doing
2: holding high GMs on the core business and the GMs for the rest isn't too bad either (meaning you could easily make money if you stopped growing the business so rapidly)
3: have no apparently demand issues for anything they make so anything they spend seems to be money well spent
If you aren't implying/stating that how they are spending the money is wrong then I am not sure what your argument is? Just that they spent money differently than you expected them to? OK. That if they want to continue to grow rapidly them might need more money in the future than they have on hand? I'm fine with that.
dc_h
Active Member
Has anyone done any estimates on sales from the first GF building and expected free cash flow? Based on tftf's 14% model, building one should produce 7 Gigawatts of batteries annualized by the end of 2016 or start of 2017. At that point, revenues would be ? 250 million per GW, or 1.75 billion, which at 15% margin would produce almost 200 million to reinvest in building 2. Based on more current estimates, the GF may be closer to 100GW than 50GW, so 14% could be more than 7GW. I think it would be instructive from an investment perspective to understand the investment needs and cash flow being generated by the energy business. If the Nevada plant is self sustaining, while doubling annually, that would leave new fund raising for European or Asian factories. One issue that will likely generate discussion going into 2017, is the level up process. Tesla, due to the current scale, tends to level up in bursts. Updates to the Freemont plant increase capacity from 800 to 1200 cars per week. The new line now allows 1600-1800 cars per week and perhaps more. The GF, being built in phases, may go from 7GW straight to 14GW, and then to 28GW, so investment will be a drain over a few quarters, and then production and revenue will quickly rise. This level up delay between investment and production has kept tftf busy since 2013 and I expect this will continue going forward. Better data will help create a more informed narrative and a better discussion.
jhm
Well-Known Member
My numbers are a little more ambitious. The equipment is about 80% of the cost of the GF, so about $80M per equipment for 1 GWh capacity. Tesla pays about half the equipment cost and collects 15% GM on Power products averaging $300/kWh. Thus, Tesla invests $40M and makes annually $300M in sales, $45M gross profit. Thus, an investment in equipment pays for itself plus 12.5% in 1 year.
If you want to allocate 2% of total property and plant to 1 GWh of capacity, that is another $20M Tesla invests. So at $45M gross profit per year, 1 GWh of capacity breaks even in 16 months.
Basically if Tesla begins with just $1B for property and plan and $0.5B for equipment, that is sufficient seed money to complete the GF in under four years. The beauty of the TE business is that it can scale just as fast as needed. Every dollar Tesla makes on a Power product can be immediately reinvested in buying more equipment. In fact, the 15 GWh of TE capacity pays for the whole GF in 3.7 years at full capacity. I suspect this is has something to do with why Tesla is so eager to get things rolling in Sparks.
Perfectlogic
Member
I think a lot of people on here are way too optimistic about how gross margins turn into net profits, both when talking about Tesla's cars and the battery storage. At a 15% gross margin I don't think there will be any profit left after G&A and R&D is accounted for. It's important to keep in mind that there is always significant overhead that isn't included in COGS but still necessary. The reason Tesla would be willing to break even on the first sales is just to get the demand ball rolling so they know demand will be there when they get to scale and then they can start making money.
jhm
Well-Known Member
Seriously? The GF equipment should have an average useful life of 10 years. The idea that GM pays for this equipment in under 11 months means that there are about 9 more years of gross profit to pay for other overhead and net income. Put another way PPE on the GF is only about 2% of GF revenue. Scaling up GFs will lead to lower R&D per GF revenue, as R&D is pretty much independent of scale. A portion of G&A will scale with GF but much will not, so G&A as a fraction of revenue declines with scale. Of course, Sales cost do increase with revenue, but as a nearly commodity type product sales costs should be pretty lean. Moreover, considering that TE is sold out through 2016, sales costs pretty much come down to processing orders. So overall profitibility improves with scale and that leads right back to the question of how much capital must be raised in order to achieve scale. So here if the incremental cashflow from sell of Power products is good, it self-funds expansion.
Another thing to consider here is that Tesla controls the pricing at this point. They are pricing a Powerpack at $25,000, but just as well could price it at $27,500 and suffer no near term loss of sales due to price competition. So if they needed a 25% margin, they could price it that way. The advange of entering a the lower price is strategic. It accelerate a transition to batteries within the utility space, andit creates a barrier to entry for would-be competitors. These strategic advantages safeguard the investment in a rapid scale up. My view is that TE primarily exists to provide battery capacity for the automotive business where margins will be more durable longterm. A major automaker needs about 1TWh of GF capacity to support 10 million vehicle production. So the question is how to acquire this capital. Taping into the utility market for the next 15 years looks to do the trick.
Perfectlogic
Member
@30second and jhm
I take it you don't follow many companies, but in general you don't make money with a 15% gross margin.
I take it you don't follow many companies, but in general you don't make money with a 15% gross margin.
Krugerrand
Meow
And you don't build rockets for magnitudes less than ULA.
And you don't build a compelling long range EV.
And you don't start a car company.
And you don't simultaneously disrupt two trillion dollar industries.
And...
I agree.
The strategy seems to be about about rounds of raising additional capital backed by orders for both Tesla Energy products and cars. Musk is clear he wants a much bigger company. There is no possible way he thinks he can accomplish size through cash flow.
Perfectlogic
Member
Yes I'm sure Elon can defy gravity too and turn water into wine. Discussing Elons businesses using logic and data from the market is futile, nothing applies to the company run by a god.
Krugerrand
Meow
Well that's an interesting response considering he's done several things that nobody else could or said could be done, all related to 'business logic and data from the market'. I'd say your response is because you've got nothing to counter the reality of what's going on and what's about to be done, including the success of Tesla Energy regardless of final gross margins.
Musk will have to raise more money. A whole lot more money. The money that he raised for the gigafactory has gone to other productive places, so he will have to raise more money in order to do the gigafactory.
These facts are not profound. Just a day in the life of a rapidly-expanding startup company.
These facts are not profound. Just a day in the life of a rapidly-expanding startup company.
Perfectlogic
Member
Business logic and data from the market was on Elon's side when he started Tesla. Many may have thought it was foolish, but the battery technology to make the Roadster was already there when he started, he didn't have to turn water into wine. It's kinda like 95% being sceptics on the prospect of solar in the next 5 years when the data clearly shows that the industry is on the cusp of a huge boom
From what I can see in your picture it looks like the current building is about 25% of the total complex if they have some space between the buildings, if not closer to 20%. Definitively more then 14% - if they have not expanded the area the building will occupy from the original plans. So no, all buildings (if it will be 7 - and they stick to the planed areal) can not be equal in size. And then probably not in cost either.
chickensevil
Active Member
I'm not following you on this line of reasoning... They aren't doing anything "magical" with the gigafactory either... Make a large number of something and it tends to lower the costs. This has been the way of business since the invention of the loom and luddites getting upset over losing their textile industry jobs back in the 1800s. And taking something back to it's source components and building up from there is also not very "magical"... why haven't more people done these things? beats me.... Maybe people haven't been willing to take the huge risks and sink all that capital into it. The world needed someone with a ton of money to go... "You know, I don't need this money, I can live off a few dollars a month. How about I make the world a better place instead" before these things took place.
Apple didn't actually do anything special either. All the stuff they put together in their first iPhone not only wasn't "new tech" but Nokia had arguably a better "iPhone" before Apple did. So why did Nokia fail, why is Apple the one credited with disrupting the phone/portable media/internet access/and others industry and why were they the ones to succeed?
Point is, business logic and data is still on Elon's side.
Perfectlogic
Member
chickensevil;1229309[B said:
I'm not saying they are. I am arguing that from the basis of looking over the income statements of a lot of companies it is unlikely that they will see any significant profit with a 15% gross margin. Take the HDD/SSD manufacturers as an example (SNDK, WDC, STX), a business that is kinda similiar I guess, they are at around 15% in SG&A+R&D. Where are all the companies making heaps of profit with 15% gross margins? Even if they managed to squeeze out a 5% margin on that 15% gross that is still only 3.3% after tax, there is just no way they make a significant amount of money on 15% gross.
dc_h
Active Member
The logic was on his side? So you think he was right in 2003, but now that Tesla has made it through the first ten plus years, built a global sales model, acquired one of the largest plants in the US for almost nothing, created an energy company on the coat tails of the car company, building perhaps the largest manufacturing site in the world (Gigafactory), built a multinational charging infrastructure, that now the tide is against him? This is so out there as to almost avoid contradiction. The logic of Tesla is much more sound today than it was in 2013 let alone 2013. Tesla has changed more since 2013 than probably any other manufacturers has in the last decade. From proving they could mass produce a luxury, high performance sedan, to now proving they can repeat that with the Model X and advancing the core technical leadership of their cars at an accelerating rate.
They are moving to a growth rate that I think will likely be over 60% for the next 3 years, as Model X and Tesla Energy sales combine with the Model 3 introduction. Hyperbolic arguments against Tesla's entire business logic and continued existence encouraged me to buy in 2013 and still inspire me to acquire on dips. I look forward to see how our differing view of the future pans out over the next few years.
They are moving to a growth rate that I think will likely be over 60% for the next 3 years, as Model X and Tesla Energy sales combine with the Model 3 introduction. Hyperbolic arguments against Tesla's entire business logic and continued existence encouraged me to buy in 2013 and still inspire me to acquire on dips. I look forward to see how our differing view of the future pans out over the next few years.
jhm
Well-Known Member
Perfectlogic, thank you for insulting me personally. Kindly show me your math and justify the assumptions you hold to be true. Specifically, tell us how much incremental R&D will be spent on TE that was not spent on other Tesla products. Likewise incremental SG&A not otherwise spent on Tesla. Additionally break out fixed and variable components. Then you can back into the scale needed to turn a profit and the time it will take for the Gigafactory to break even. In short, cut your condescending crap and show us your analysis.
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