Warning: Utterly clueless CEO alert

[Cosmacelf]

The CEO of GM, that is: http://insideevs.com/gm-ceo-says-cadillac-elr-is-in-the-same-postal-code-as-tesla/

When the head of your company doesn't know the FIRST thing about either his own products or the competition, well, it isn't a wonder that it is a government supported basket case. The mystery to me is that they can still produce some good cars here and there.

So, he admits that GM loses money on every Volt they produce. Heh.

While I understand that some companies are so big that the CEO ends up being simply an uber-middle manager, with a lot of time tamping down palace intrigue and the like, give me instead a silicon valley CEO that knows what the %*@%#& the company makes any day. Sheesh.

 

[Jeff N]

The CEO of GM, that is: http://insideevs.com/gm-ceo-says-cadillac-elr-is-in-the-same-postal-code-as-tesla/
So, he admits that GM loses money on every Volt they produce. Heh.

Careful, it isn't clear that he said anything more than GM hasn't made enough operating profit on each Volt sold to pay down the full program R&D costs. In other words, his statement is entirely consistent with GM making a gain on each additional Volt they make and sell. My impression is that this is not unusual for major new model introductions after less than 3 years. For example, the Prius program reportedly did not pay down their R&D costs for about 7 years (starting with the original Prius released in 1997 in Japan).

I haven't been following Tesla's financials very closely but I'm doubting that they have made enough profits on sale of the Model S that they have already paid off the overall cost of the Model S development and manufacturing infrastructure. Or have they?

 

[RobStark]

Careful, it isn't clear that he said anything more than GM hasn't made enough operating profit on each Volt sold to pay down the full program R&D costs. In other words, his statement is entirely consistent with GM making a gain on each additional Volt they make and sell. My impression is that this is not unusual for major new model introductions after less than 3 years. For example, the Prius program reportedly did not pay down their R&D costs for about 7 years (starting with the original Prius released in 1997 in Japan).

I haven't been following Tesla's financials very closely but I'm doubting that they have made enough profits on sale of the Model S that they have already paid off the overall cost of the Model S development and manufacturing infrastructure. Or have they?

GM has been manufacturing the Volt for nearly three years. Volt program cost about $1.2B. Total global sales including Ampera is less than 62k. When you include advertising GM makes an operating profit of less than $10k per Volt/Ampera sold. So about half way to recouping that $1.2B.

For Tesla it is difficult to distinguish Models S program expenditures from "saving your rear end from bankruptcy" expenditures.

And Model E and general company expenditures.

But Tesla has only been delivering Model S for about 15 months.

After 3 years I am quite confident Model S will have recouped program cost, under any reasonable accounting standard.

 

[Palpatine]

Model S and Model X development costs are mixed together since they are using the same platform and likely many of the same parts.
So it will be impossible to assign costs only to the Model S. You have to look at the total company, not just one product line.

A smart company will do it exactly like Tesla Motors is doing it.

The same is a bit true for GM. They are now going to be using the Volt technology in the Cadillac ELR.
So is it fair to assign 100% of the R&D only to the Chevy Volt division?
Not really.

 

[RobStark]

Model S and Model X development costs are mixed together since they are using the same platform and likely many of the same parts.
So it will be impossible to assign costs only to the Model S. You have to look at the total company, not just one product line.

A smart company will do it exactly like Tesla Motors is doing it.

The same is a bit true for GM. They are now going to be using the Volt technology in the Cadillac ELR.
So is it fair to assign 100% of the R&D only to the Chevy Volt division?
Not really.

They have not sold any ELR or Model X.

When they do we can add the marginal profits and marginal cost to those developmental programs on the balance sheet.

 

[NigelM]

[Warning: risk of discussion on accounting principles may ensue...]

There's potentially a whole different treatment of development costs between GAAP and IFRS.

In the case of GAAP companies will generally expense R&D costs but tooling will be capitalized and duly amortized over the expected volume life of the component. In other words, development R&D costs incurred by a new company would like be carried forward as losses while R&D at an established company may just be absorbed as expenses as incurred.

If you're looking at non-GAAP (assume IFRS) results then under IAS38 certain development costs are required to be capitalized and there is a set of defined criteria.

With any accounting option the open question is how (well) do the companies forecast their volume sales in order to amortize any costs/investments that may be capitalized.

I tried to keep that simple, but I fear it may not help the discussion.....

 

[Palpatine]

They have not sold any ELR or Model X.

When they do we can add the marginal profits and marginal cost to those developmental programs on the balance sheet.

Tesla Motors has about 6,300 reservations for the Model X and 800 Signature reservations.
That is something like $63 million in deposits that they have in the bank as an interest free loan.
So I think it is fair to assert that the Model X is already contributing to the balance sheet.

 

[MikeL]

Excerpt from the comments: GM is currently "between bailouts". :smile: Now if you make use of public money, I'm not one to hold it against you forever, unlike a great many people, apparently. But even I must admit, true or relevant or not, saying GM is "between bailouts" is pretty funny.

 

[RobStark]

Tesla Motors has about 6,300 reservations for the Model X and 800 Signature reservations.
That is something like $63 million in deposits that they have in the bank as an interest free loan.
So I think it is fair to assert that the Model X is already contributing to the balance sheet.

I would be willing to wager that is more than the ELR will contribute to GM's bottom line.

Do we know what the marginal cost to develop the Model X are?

 

[NigelM]

Do we know what the marginal cost to develop the Model X are?

Model X development isn't finished yet so impossible to know what final costs will be. Tesla will have internal budgets but that is definitely not published data

 

[AudubonB]

Excerpt from the comments: GM is currently "between bailouts". :smile: Now if you make use of public money, I'm not one to hold it against you forever, unlike a great many people, apparently. But even I must admit, true or relevant or not, saying GM is "between bailouts" is pretty funny.

It's a great line! Now, if this had been referring to, say, a Chinese company, I also would find it funny. That it refers to what had been, for most of a century, the iconic American manufacturing behemoth, I find 99% sad and 1% pathetic. Ah well.

 

[RobStark]

Model X development isn't finished yet so impossible to know what final costs will be. Tesla will have internal budgets but that is definitely not published data

I didn't think we would have an exact final figure but I am sure Tesla knows a ballpark number. They already have the patent figured out on the Falcon doors and the major sheet metal configuration.

I figured a good ball park number might have leaked.

 

[qwk]

It's a great line! Now, if this had been referring to, say, a Chinese company, I also would find it funny. That it refers to what had been, for most of a century, the iconic American manufacturing behemoth, I find 99% sad and 1% pathetic. Ah well.

Sorry to break it to you, but some American companies plain suck(GM is one of them), just like some Chinese suck, and some are great. If you were referring to jobs, somebody has to take the demand up for vehicle sales that GM would have given up, so job loss is just a lame excuse used by politicians.

 

[AudubonB]

Smarmy comments merit negative reputation points. If you had read before responding, you might have noticed I wrote HAD BEEN the quintessential American icon. GM did not earn and retain for many, many decades its post as the largest and most profitable firm in the world by being the great example of a bad example that it is today. That is what is sad and pathetic.