Tesla may need cash to deliver on the Model 3: Analysts
cnbc.com
cnbc.com
In addition the content at times even contradicts the title...
"RBC analyst Joseph Spak, who has a $180 price target, said strong initial orders for the Model 3 could help Tesla achieve positive free cash flow"
...
"In February, the company said it expected to be cash-flow positive in March."
A more accurate title might be: "High Model 3 demand poses growth challenges and an increased need for capital."
By the time the Model 3 goes into production, it could face stiff competition from several entrants.
The Model 3 might not have a lot of competition today, but it likely will in a few years time and it remains to be seen how many of the preorder customers will stick with their decision if/when other choices are available.
As if anyone is likely to come up with a car this compelling in the same time frame. Like some mass-produced awesome car is just going to appear out of nowhere. Yes, the big manufacturers have some things like the Bolt in the works. Have you seen it? It's pretty meh. You wouldn't expect any of them to rack up hundreds of thousands of pre-orders before anyone's even gotten their hands on the car in person, non-binding or not.
Yet somehow all these internet analysts seem to think somehow all this incredible passion for the Model 3 will just magically fade away in favor of the exceptionally meh cars released by Chevy and Nissan and others. That's just not how things work. People have waited 12 years for this, you don't think they can wait two more?
I swear to god, even after Tesla is selling 10 million cars per year, you're still going to have people sitting here saying "But can they keep it going? Here comes the Tesla-killer~"
Extreme analogy, I know, but reminds me of Holocaust denialism. Some people are just determined to see past all available evidence to focus on one outcome which suits their personal biases.
This is business, there are a number of realistic possibilites and not all are favorable for Tesla.
Holocaust denialism? Join the rest of us in the real world please.
Welcome to the real world.
-very extreme analogy to the say the least, seems someone else here has a strong personal bias to use a crazy analogy.
its great that you believe in a company strongly, but to downright shoot down any other possibility is bias.
personally not ordering model 3 as: -dont want to be driving first iteration
-contrary to your comment, alot can happen in 2 years.
-i dont think they can meet demand, probably 2-3 years realistic
-i will likely be in a comfortable spot (hope) to afford Model S by end of 2017
-too much unknowns for Model 3
I am indeed biased: I focus on available evidence. That's my bias. And all available evidence screams that Elon Musk's companies succeed at the things they set out to accomplish.
Both have one of two boxes checked, why is Tesla obviously better a getting their second check?
Tesla has already checked their box. The car is $35k. The price isn't going to magically change. Musk isn't going to be like, "Sorry guys, turns out it's $50k."
Nissan has not checked their box and there is zero reason to think they ever will.
[1] https://www.teslamotors.com/careers/job/project-manager-gen3...
I'm pretty sure they know what they're doing, given they made the highest rated vehicle, ever.
which is a good problem to have. Especially for a company with the popularity and positive image of Tesla -- they should have a fairly easy time raising capital from outside investors, if they so desire. It's a challenge, to be sure, but not as difficult as the headline makes it sound.
(After a nearly 3-year hiatus, it's good to have you back on HN.)
Heh. Elon Musk tweeted earlier today that they already had 276k reservations by the end of Saturday. So Tesla may reach this analyst's "end of June" target tonight.
If you are looking at the ocean, where sensors are only placed every 500KM - your accuracy will be very low.
Source: I sail boats and study forecasts occasionally.
For example, Graphenano claims they will ship graphene batteries this year.
This "biggest risk" you've named is....entirely fantastical. A battery invention making the Gigafactory obsolete? What?
1. What kind of invention are we talking here? A new battery that stores 100,000mi per charge, is lightweight (magically), and charges in 10 seconds? Great, then the Gigafactory can start manufacturing that instead. It wouldn't be obsolete.
2. Even if such a thing as #1 were invented, great, now Tesla's product is infinitely more compelling. They'll sell that many more cars. The car now has enormous range and charges very quickly. This is a bad thing? What??
3. Even if #1 were invented and somehow intellectual property'd out of Tesla's reach, how's it going to hurt them? Are we imagining one of their competitors magically coming up with this, and conjuring an equally compelling but superior car out of thin air, using technology Tesla has no access to? That's an incredible turnaround time, this new tech being revealed AND reaching mass production AND having a car designed around it which ALSO reaches mass production...all before 2017. Incredible! Unheard of!
4. #1 is a joke. That won't happen, can't happen, has never happened. New revolutionary hardware technologies don't just appear. They gradually work their way into society, and it takes a lot of time before methods are found to cheaply mass produce new hardware technologies.
Given that your "biggest risk" is an absurdist fantasy, I think we can safely say Tesla's in a good position!
The Gigafactory IIRC has a $5B budget. The building and the land isn't expensive, especially given the preferential treatment by the government. The machinery and infrastructure, tailored for lithium battery production, are the biggest part of the budget and you won't be able to "just switch it out". The Gigafactory is a lithium battery factory on a massive scale, nothing else.
> New revolutionary hardware technologies don't just appear
Do you remember the revolution that got sparked by the iPhone? That one needed half a year to totally turn over the mobile phone market. It's not uncommon.
On the other hand, I agree that a revolutionary new technology is unlikely to appear - and with the Gigafactory, Tesla and Panasonic can basically control battery prices for the rest of the world.
2. Sure, the cars have better range and probably Tesla can sell more cars but that's capital intensive and they just pissed away 15% of their market cap. Not great capital wise.
3. It hurts them because, as I mentioned, they spent a fortune and they might as well have lit a fire with the money. At least they'd be warm for a bit... Investors typically are not happy when a company makes a bad bet to the tune of a couple billion bucks.
4. How long have you been reading about graphene batteries? What about the company I mentioned which promises them this year?
New battery technology is very expensive to research and create in mass production, but we have a long road of potential improvements to catch up with the energy densities of most other fuels and research has batteries that improve upon lithium ion.
The only thing that matters now is whether Tesla can build a great car profitably and cheaply in high amount, not cash-flow.
The "problem" is Tesla is trying to become the GM or VW of EVs before GM or VW get a chance to use their massive cash cows to dominate the market. So they're trying to cover the market with as many different models as their financials allow them, as well as trying to build the SuperCharger infrastructure globally. All of that R&D and infrastructure costs a lot of money and it has to come from somewhere -> current cars' profits.
To make things even simpler to understand, Tesla will operate on an Amazon model of not giving a damn about quarterly profits for the next decade or two, while building the biggest (Tesla-only) fast-charger network in the world (huge competitive advantage) and at the same time trying to grow as a company as fast as possible and entrench itself in the car market as the Apple of EVs.
Oh, and almost forgot about the whole Gigafactory thing. And one of those isn't even going to be enough by 2020 (don't forget it also has to make PowerWall batteries). That alone cost $5 billion and Tesla couldn't even build it all itself (just goes to show how much money Tesla needs to invest in its future, not pay dividends or brag about its 30%+ profits every quarter).
Electric cars are not the future, there just isn't enough lithium on earth to do this. The US might be able to, but not worldwide.
Powerwall is definitely not ever going to get off the ground - cars are more profitable, and they will never have enough extra supply to shunt some to powerwall.
While I don't know the answer myself, I am inclined to think that Elon's not just planning on running the company straight into a widely foreseeable dead-end. Seems unlikely, don't you think?
Like, imagine this interview:
Interviewer: What is your plan for when lithium reserves run out?
Elon: Wait, what? There's a limited supply? Hold on, need to google this.
Take 2:
Interviewer: What is your plan for when lithium reserves run out?
Elon: Oh, I'm sure we'll figure something out, cross that bridge when we get there.
(Has he EVER given an answer like that, politician-style? No. Never.)
Seems like a safe bet that this imagined problem has a solution which hasn't been shared with us because nobody's asked him.
Why do you think this is wrong? He'll have many years to figure this out - this is a longterm problem, not a short term one.
It's not like you can't do the math yourself on global extractable lithium supply, and how many cars you can make with it.
I'm betting, not on new battery technology (any element except the big 10[0] would run into the same problem), but rather on a new engine that can burn very clean synthetic hydrocarbon fuel.
But if I did have to do research on battery tech today it would be on an aluminum ion battery.
[0] https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth... [1] https://en.wikipedia.org/wiki/Aluminium-ion_battery
"according to a 2011 study conducted at Lawrence Berkeley National Laboratory and the University of California, Berkeley, the currently estimated reserve base of lithium should not be a limiting factor for large-scale battery production for electric vehicles, as the study estimated that on the order of 1 billion 40 kWh Li-based batteries could be built with current reserves. Another 2011 study by researchers from the University of Michigan and Ford Motor Company found sufficient resources to support global demand until 2100, including the lithium required for the potential widespread transportation use. The study estimated global reserves at 39 million tons, and total demand for lithium during the 90-year period analyzed at 12–20 million tons, depending on the scenarios regarding economic growth and recycling rates."[1]
In that time period a lot of the ongoing research in batteries is going to mature and alternative or more effective ways of using materials will happen.
In the short term, though, existing reserves are mostly in Argentina, Chile, and Bolivia. I wonder how difficult it would be for a cartel to manipulate pricing?
And since lithium batteries are recyclable, we pretty much just need to extract it once.
But extra battery technologies will be good. Batteries will be a commodity, lithium ion batteries will be used both in grid storage, home storage, and car storage. Batteries are the oil of the 21st century.
I did say it's enough for the US - but the entire world is 10 times that number - not enough.
Plus using it for household storage (powerwall) would be far too much.
Extracting other deposits could come with steep costs both economic or environmental.
It's a good stopgap and worth doing! But lithium batteries should not be viewed as a longterm answer, that's all.
also curious to see if the model 3 will represent greater reliability for their vehicles...
Current level of reliability + current service model @ model 3's volume == nightmarish owner experience.
Anecdotally currently at 26k with zero issues.
Also, according to Edmunds.com, a 3 Series BMW will cost you about $2,000 in annual maintenance after the 3 year warrantee expires.
I'd kill for a practical family wagon (I consider the Model X as being too small and without good storage, and the S as being just too expensive). The Model3 has nice looks, but it's pretty compact and it's a sedan so a complete no go .
The VW GTE wagons are perfect but they are hybrids. I suppose they will be fully electric soon, the question is how long it will take before VW and others have a similar price for batteries as Tesla?
If they're smart, they'll cancel it in year 3.
I just can't understand why someone would want an X5 or similar just to get more "utility". Most utility per dollar was always the wagons/estates. I realize there is a thing with culture and traditions (wagons seen as boring in the US etc) but you can't deny the fact that a SUV that loads like an A6 or 5-series wagon is a Q7 or X5, which is twice the price of the wagons! Don't get me wrong I'd be happy to drive a Q7 but I don't want to pay more than A6 money.
It's rumored the next vehicle will be the Model Y (To complete "S3XY"), and will be a pickup, or some form of utility vehicle based on the X
Wagons and hatchbacks is a huge market share in the EU, and most the wagons are built on the same base as the sedan models (5-series, E-Class, Passat, A6 etc). There is a reason everyone does that - to get more models at lower cost. If I were tesla my next car after the compact sedan would be a hatchback made on the same platform as the 3-series, then a full size sedan+wagon like an E-class built on the model S base.
If sales and orders continue rising, and he requires investments, then he's already hooked in investors. Tesla might just prove themselves to be the gateway to a new infrastructure model.