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The "Is Tesla Going Bankrupt?" thread

milleron

Member
Jun 16, 2017
215
198
Columbus Ohio USA
And now I come to camp to find the waters called muddy and the current quickened . . . .

TalkingMule, I'm a born pessimist. It's my worst personality flaw. But I, too, am betting that the levee will hold. I can't explain it other than to note that the Tesla cars seem to be the perfect idea for the times, and no one can hold back the future. Even if Elon made an arithmetic error somewhere and profitability doesn't come in the nick of time to save the current iteration, I have faith (that's uncharacteristic for me) that Tesla will survive and thrive. Through my pessimistic eye I think I can vaguely discern a time in the future when financial gurus will quote the current Tesla naysayers whenever they need a humorous example of how the oldtimers, despite their self-proclaimed wisdom, entirely failed to notice the tsunami that was cresting over their heads. But that may be only wishful thinking. ;)
 
Jun 28, 2017
868
811
Oregon
TalkingMule, I'm a born pessimist. It's my worst personality flaw. But I, too, am betting that the levee will hold. I can't explain it other than to note that the Tesla cars seem to be the perfect idea for the times, and no one can hold back the future. Even if Elon made an arithmetic error somewhere and profitability doesn't come in the nick of time to save the current iteration, I have faith (that's uncharacteristic for me) that Tesla will survive and thrive. Through my pessimistic eye I think I can vaguely discern a time in the future when financial gurus will quote the current Tesla naysayers whenever they need a humorous example of how the oldtimers, despite their self-proclaimed wisdom, entirely failed to notice the tsunami that was cresting over their heads. But that may be only wishful thinking. ;)
I agree that Tesla will survive. It may be owned by the current bondholders, or by the Chinese, but it will still exist.
 

neroden

Model S Owner and Frustrated Tesla Fan
Apr 25, 2011
14,676
62,629
Ithaca, NY, USA
Thanks for the solid analysis, wdolson.
If Tesla were to run out of money, somebody would definitely buy the company....
Someone upthread pointed out Tesla is making about $2.5 billion profit on Model S and X sales and when they hit 2500 Model 3s a week (they just hit 2000), they will make $5 billion from the Model 3...
 
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Jun 28, 2017
868
811
Oregon
If Tesla were to run out of money, somebody would definitely buy the company. It probably wouldn't be another established car company, but there are plenty of other companies who would love to buy them out. Elon almost sold out to Google when the company almost went under in 2008. Alternatively Apple and Amazon are both sitting on a lot of cash.

There are also a lot of foreign investors who would love to scoop up Tesla. A number of Chinese companies would love to get an entry into the western car market and buying such a prestige brand would be a good investment. Volvo already sold out to the Chinese.

The thing the FUDs gloss over is the difference between a company that is losing money because of a lot of fixed costs. GM and Chrysler were in that situation by 2008 and went bankrupt because a drop in sales made them nonviable. A lot of the tech start ups that went bust in the dot com crash were losing money on every sale. Some didn't even have any real plan to turn a profit ever. In the latter case, their best bet was to sell out to a larger company and run with the cash. I worked briefly for a company that did that.

Tesla makes cars with massive profit margins. If Tesla wanted to shut down R&D and expansion and just milk the existing products, they would make a healthy profit, but that's very short sighted. They strategically burn cash to expand the company and develop new products at the fastest rate possible. That is a totally different scenario from a start up selling a product that costs them more to make than they get selling it or a legacy business with a lot of fixed costs they can't get out from under.

Tesla's situation isn't rock solid, but it's not all that wobbly either. The short term stock price fluctuations have a lot more to do with the emotional state of the investors than it does the actual bottom line of the company. The stock markets around the world have been down so far this year. Tesla is down a bit more than the averages, but that's not unusual for a stock in a company like this. When times are scary, money runs to the safer bets. Blue chip stocks are called that because they have a reputation for stability over many decades. Tesla may be a blue chip stock someday, but it won't be anytime soon because they haven't been around long enough.

Looking at the numbers, Tesla made $11.7 billion revenue last year and $2.2 billion in gross profit after the cost of revenue was figured in. They had a net loss because R&D was $1.3 billion and everything else was $2.4 billion. Without R&D they just about break even. A significant area where they burned a lot of money last year was the final push to get the Model 3 into production. They don't have any new car introductions planned for this year. They are tooling up for the semi and the new Roadster, but they aren't to the most expensive part of spooling up for production yet.
Well, not exactly. Tesla lost $2.2 billion last year. R&D was $1.3bn so without that they lost about $900 million. That's not my definition of "just about brak even".
Someone upthread pointed out Tesla is making about $2.5 billion profit on Model S and X sales and when they hit 2500 Model 3s a week (they just hit 2000), they will make $5 billion from the Model 3. Say this year they just average 1250 Model 3s a week for the year. They will probably beat that if they are already to 2000, but let's take a worst case figure. That's still $2.5 billion in gross profit for the Model 3 and a total of around $5 billion gross profit for the year.

If R&D and other expenses are equal to last year (they could quite possibly be lower), that would be $3.85 billion in expenses that cut into the gross profit. They have $1.15 billion to pay off the bond or go to some other debts. When I saw Tesla was issuing bonds for the last round of funding for the Model 3, it told me Elon had run the numbers and figured there was a good chance he could pay off those bonds early. It will probably be slower than he thought because the Model 3 is ramping up slower than he had planned, but the company is not breathing fumes here.

Rather than run around hair on fire that Tesla is burning a lot of cash, look at what it has been used for and compare to other situations where companies had a burn rate. Tesla's situation is a lot closer to Amazon's circa 1999 than GM, Chrysler, Kodak, or even pet.com. Investing in young companies is always more risky than established companies. If you want steady, invest in GE or Kroger.

The car industry has hated Tesla from the start and has wanted them to go away. There are a couple of reasons for this. Tesla refuses to sell through dealerships, which makes the other car company's direct customers (dealerships) unhappy. The ICE makers have also been lobbying governments, especially in the US that the fuel economy standards the governments are trying to push are impossible to meet. Then along comes Tesla with cars that make the fuel economy standards irrelevant because they don't use fossil fuels.

Up to now, they could slough off Tesla arguments by pointing out that Teslas were very expensive and more moderately priced EVs sold by the traditional car companies don't sell all that well. Of course most of the EVs are weirdmobiles with poor range sold by dealerships that mostly try not to sell them.

Now along comes the affordable Tesla. All the companies were hoping Tesla would crash and burn before the Model 3 hit full production because if Tesla can sell several hundred thousand Model 3s a year, it would badly hurt their argument the public really doesn't want EVs, especially affordable ones. Now that Tesla's stock has taken a beating (along with most of the rest of the market) they are piling on to try and run the stock down as far as possible to make the claim Tesla is bankrupt.

The Tesla bears have been out there from the start. A lot of the loudest doom and gloom people today have been bad mouthing Tesla for years and at least some of them are confederates of the mainstream car industry. Some of the other short position people are doing what is essentially a pump and dump in reverse. They are trying to get the price down so they can jump in at a sweet price.

If investors are doing their job, the price of a stock should reflect the health of a company, but it doesn't. Technically Tesla's stock could go down to $1 a share and the company could do quite fine. The relationship between stock price and company health usually reflects reality because there are enough rational investors to stabilize a stock's price to reality over the long haul, but a stock can get wildly inflated or under valued when emotions run high.

I don't expect Tesla to go under as long as the overall economy remains relatively OK. If we have a 1929 type crash, then all bets are off. If it does, the company will live on in some form as a subsidiary of another company because what they have built is too valuable. It may end up being a shell of what it was, but you won't be left with a car that has zero support and it's almost certain new Teslas would be made, though the pace of innovation may slow down quite a bit.
 
Jun 28, 2017
868
811
Oregon
Well, not exactly. Tesla lost $2.2 billion last year. Excluding R&D that leaves them at $900 million of loss - not my definition of "just about break-even".

They have $3.4 billion of cash. They need to pay off the $1.2 billion of bonds before February and they owe suppliers and other short-term creditors about $4.5 billion. I think they lost $800 million - $1 billion in Q1 and probably burned about $600 million of cash.
 

Lbkmxp100d

Member
Dec 7, 2016
521
1,176
Lubbock, TX
Well, not exactly. Tesla lost $2.2 billion last year. Excluding R&D that leaves them at $900 million of loss - not my definition of "just about break-even".

They have $3.4 billion of cash. They need to pay off the $1.2 billion of bonds before February and they owe suppliers and other short-term creditors about $4.5 billion. I think they lost $800 million - $1 billion in Q1 and probably burned about $600 million of cash.

Considering their growth and ramp cost I would consider 1 billion a huge win and believe it beat most analyst by a good chunk. The upside is huge w/ $TSLA.
 

mainecoon

Member
Feb 5, 2018
161
207
San Francisco
Just got back from the Tesla Factory tour. Damn impressive. I was blown away. That place is no joke. It was like a city within a city. The tour guide told us 10,000 people work there. The machines, the robots and the human workers there all worked in unison in assembly to get Model S, Model X and importantly, Model 3 cranking out daily. Wish I could take some pics but they make you sign an NDA and all that jazz so no photos. Anyhow, I don't believe Tesla is going BK. There is serious value here. The work they put in to establish this brand and revolution is just too important. They will probably roll that debt into equity at a lower conversion price and the stock is gonna sink some. They will probably end up raising fresh capital on a secondary offering by year end. They will make it. Worst case, if external forces make life difficult, ie; Trump starts a war with Putin and sales go off a cliff, China trade war exacerbates, and China takes us to the mat, or the market in general collapses from here, I see deep pockets like Apple, Google, Uber stepping in. Or they will partner with a bigger company (Toyota) for production capability and equity ownership. Absolute worst case, some Chinese company flush with crazy money steps up for a bid, but I'm not hoping for that.
 
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FlyF4

Son of a MX
Mar 21, 2017
841
559
moved to San Diego
The good news is that if they do go bankrupt the company won't simply evaporate. They've built too much of a brand. Someone will acquire them. That means that service, support, development etc will likely continue on even if Musk goes bust.

I agree with your belief, yet I am a realist and think ANYTHING is possible. Some people made comments like the above one not long before DeLorean went bankrupt. Remember DMC? No company acquired them and continued making the cars. The only DMC cars around these days area from collectors and producers making movies :D

Again, I actually agree with your assessment, but I keep in mind that nothing is absolute. There is always a possibility it can exaporate. however slim the possibility might be. ;)
 

wdolson

Supporting Member
Supporting Member
Jul 24, 2015
7,746
10,567
Clark Co, WA
Yes, sure do - they're located 35 miles away from me by IAH. They've been rebuilding cars and have plans to resurrect the line building about 50 new cars a year; though, like Tesla, looks like they're behind schedule.

I've heard the resurrection of DMC to support the fleet built back in the 80s (as well as produce a few new cars) as a reason Tesla would survive in some fashion if they went bankrupt. There is a much larger fleet of Teslas on the roads than DeLoreans (8500 built) and they have support.
 
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Todd Burch

Voltage makes me tingle.
Nov 3, 2009
8,150
32,539
Smithfield, VA
Put this in your pipe and smoke it.
7B976F68-158C-4083-BCE7-7D0042B44055.png
 

mos6507

Member
Jan 12, 2008
94
48
I've heard the resurrection of DMC to support the fleet built back in the 80s (as well as produce a few new cars) as a reason Tesla would survive in some fashion if they went bankrupt. There is a much larger fleet of Teslas on the roads than DeLoreans (8500 built) and they have support.

The only reason Delorean still exists is due to the nostalgia-factor. Avanti would be another example from history. For Tesla to persist at this brown-dwarf stage would be to become completely irrelevant.
 
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Dangleitus

Member
Jun 1, 2018
38
-55
Boston
I understand. But Amazon went for 18 years post-IPO before becoming profitable, and in the not-quite-3 years since then the stock price has roughly tripled. In the meantime Tesla has actually had a profitable quarter, a few years ago, just a few years post-IPO. So long as "indefinitely" is less than about another 10 years, I don't see a problem.

I wish people would check their facts often. Amazon was profitable in 2003, or 5 years after their IPO. Source:

Form 10-K for the fiscal year ended December 31, 2003

It would be nice if people attempted to check facts before making statements.
 

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