Ford can have fewer employees per car because they're at full scale, they've outsourced nearly all their engineering and have outsourced their sales as well via an antiquated dealer model.
But within the same strategic groupings, it might become more appropriate to say "outsourcing or more/less integration is/isn't a good choice for this industry due to xyz". So at some point you might expect to see (for example) the manufacturer who mines their own metal's revenue to increase if there's ever a global shortage, compared to competitors who rely on other companies. So as in, the mining car company might have lower production numbers per employee than competitors due to a larger staff, but if vertical integration makes sense in that industry, you'd expect revenue per employee to demonstrate that over time.
In this case, if Tesla have lower production numbers per staff due to less outsourcing then that's just necessity, due to the fact that it's a tentative young company which sells a highly niche product. It'll work out over time if they can establish themselves in the industry.
But basically yeah you're correct, it doesn't make sense to look at a single metric in isolation, without taking a wider view.
EDIT: must be subcontracting...?
Ford was immediately profitable, was it not? Even before implementing an assembly line?
In what world is a Jaguar a "medium" end car? The high end Jaguars extend into Maserati territory.
If Tesla wants to be better than a Maserati or Jaguar, they need to observe how much nicer the interiors of those cars are. Consumer Reports doesn't care about that above a certain level of basic competence, but a Maserati or Jaguar buyer does.
Indeed. I was shocked when I first hitched a ride in a Model S – the interior is more spartan and cramped than that of a 90s Japanese keicar (an impressive feat, in a sense) apart from the entertainment system, which had an uglier, clunkier UI than what any web developer could have drawn you up in a week.
The sales rep's "oh don't worry about battery replacement cycles, nobody keeps a car for longer than five years anyway" statement was only the final nail in the coffin.
Note: I'd still like to believe in Tesla's world improving ambitions
I mean, sure, but you have to be awfully fanatical to put up with just how uncomfortable the cars are right now.
https://en.wikipedia.org/wiki/List_of_defunct_automobile_man...
1. http://revenuesandprofits.com/amazon-vs-walmart-revenues-and...
For fiscal 2015 they were positive on net income: $596 million.
Q1 2016: $513 million in net income
They'll be generating $3 billion in annual net income in just another year. Sounds like a business to me, even if half of that net income comes from AWS.
Those companies are means to an end, not profit-generating machines.
How is this not investing in their future?
The only real difference is that they have higher bootstrapping costs due to the type of product they make. i.e a physical object with a complex production pipeline. The only way to ever get profitable is to heavily and intentionally reinvest in R&D. Musk is doing the only thing that a startup in this space can do and expect to succeed outside of getting acquired which would be pretty much directly counter to the stated goals of the company.
- Use that money to develop a medium volume car at a lower price
- Use that money to create an affordable, high volume car
Amazon is way better at making money to invest in growth. Tesla ?still? is in a fairly deep well, and will need investments to crawl out of it. Big question is whether they will.
Good news is that they aren't at 2012 scale anymore; bad news is that they aren't improving recently (https://ycharts.com/companies/TSLA/profit_margin)
The income increases the cash flow, which is obviously important, but it also signals to investors and bankers that there is a business, and they can invest or loan with better confidence.
The ship has been righted for now, but it was pretty good in 2000 as well.
[1] http://mobile.reuters.com/article/idUSTRE70R0S420110128
[2] http://www.factcheck.org/2011/09/ford-motor-co-does-u-turn-o...
That's like saying the top VC firms are all inept because most of the startups they fund fail.
It has often been the role of our government to make risky bets in order to advance step-changes in our society's progress. Those bets have resulted in such things as spaceflight, modern telecommunications, lasers and the internet to name just a few.
If Tesla indeed transforms the world as they are poised to do, their success will far exceed the cumulative failures of Solyndra and the like.
Not to mention, Tesla's competition are subsidized in many ways, most of which are more subtle than the tax credits for alternative fuels that you allude to. Failure to price in the health and climate externalities of fossil fuels amounts to subsidy, as do the trillions of dollars spent on overseas entanglements to secure fossil fuel supplies.
I love it when people champion entities like Tesla benefiting from incentive structures when it's conveniently aligned with their personal beliefs about the superiority of the tech industry, their political agendas, and/or the idolzation of people like Musk, but forget that there's a far broader and more insidious reality here.
Reply to Below: Not libertarian. I believe strongly in government regulations where appropriate and that limiting our personal liberties in certain ways is essential to guaranteeing economic and physical security. I happen to agree with the sustainability agenda as well. I disagree with the mechanism being employed to advance it. USG should instead focus on taxing/penalizing for carbon emissions as a negative externality, which would have an ancillary benefit of making alternative energy companies overall more competitive. Asking the government to make decisions about structuring incentives, by contrast, is positively asinine (you get things like ethanol). Furthermore, I have a serious problem with the government deploying tax dollars to directly benefit corporations when there is no immediate and tangible return, regardless of the context.
But you're really just throwing around a bunch of innuendo and five-dollar words to suggest the incentive structure that Tesla (and all other automakers) have at their disposal is bogus. You've provided no evidence, and Occam's Razor offers a much more reasonable explanation: becoming energy independent and sustainable would be in our national interest in a massive way, and policymakers decided these incentives offer a reasonable risk / reward for accelerating that goal.
If you object on some philosophical / libertarian grounds then fine, I disagree with you but can understand where you're coming from. But don't throw around unsubstantiated claims of corruption and "insidious realities" and expect anyone to be sympathetic to your argument when you're not actually saying anything of substance.
Does Tesla price in the health and climate externalities of the lithium cycle and the reset of their raw materials?
These blanket statements are often wrong, there are really bad instances of a government trying to manipulate markets but there are also instances where it is needed to keep businesses in check.
I would rather live in the world as it is right now than in a Corporatocracy.
This sounds exactly like the free market to me. Hapless morons who don't know what they're doing—but try to reach their goals nonetheless—as far as the eye can see.
Edit: I feel like I have to clarify this everywhere perhaps because it's an unorthodox viewpoint: of course companies need to be regulated; I'm arguing against government-sponsored incentives and subsidies. Stick to making it more expensive to burn fossil fuels, thereby increasing receipts (use it to fund alternatives research, studies, etc similar to how Big Tobacco has to pay for anti-smoking ads) instead of less expensive to buy someone's product, at the cost of taxpayer dollars.
The alternative would be making petrol-car drivers paying for the actual costs of cars including healthcare for diseases related with pollution, possibly at any level of the production chain and so on.
Hidden costs are often cut away and offloaded on community (I couldn't find anything specifically related with cars (didn't have time to look for), but for comparison here's a short video that shows the real costs of meat https://www.youtube.com/watch?v=uZDsSnpYZrw). Incentives make it a little bit more explicit. While it may be true claiming that Teslas cost would be higher without incentives, for sure Ford's car would be way more expensive if everything had been taken into account.
What's sad is that so many people seem to take an all-or-nothing stance on this politically. Either laissez faire or nanny state. Moderation is a dying art.
In some way I notice the irony that these incentives for automakers (aimed to reduce pollution, to keep jobs, to communitize part of the drawbacks related with cars, ecc...) are a form of socialism in the US. Well done Yankees.
And if we don't invade country X, it may come back to bite us some day, right? And if we don't prop up the auto industry buying clunkers and robbing shareholders to pay union reps top dollar, people will have to start riding bikes and millions will be out of work, right?
If you're hoping for miracles, the government would be the last place to go looking for them. Necessity is the mother of invention, and while one could argue that our society "needs" this technology just like it "needs" to invade other countries, centralized decision making never leads to optimal outcomes, let alone "miracles".
(Tesla's subsidised by lithium salt concentrations in Bolivia, but that's a rather smaller overall subsidy.)
http://priceofoil.org/fossil-fuel-subsidies/ https://en.m.wikipedia.org/wiki/Energy_subsidies
How much would it cost you to create a barrel of crude oil?
Not "extract from the ground", the usual meaning of "producing oil", which borrows rather more from "produce the evidence" than "manufacture the good". But actually start with high-entropy substrates and some energy source and synthesize oil.
Why do markets not account for this cost?
(Hotelling's Rule is ignored, and is, moreover, based on faulty logic. Curiously, Bohm-Bawerk, an Austrian Economist, gets far close to the truth in his theory of value, an exceedingly rare case in which I find myself agreeing with any Austrian principles.)
Are you going to account for the cost of making water? Not the bill you pay to the utility for use, but the actual cost of formulating water?
What about air?
How about the cost of creating a sun if you rely on solar power?
Short answer: cost, flux, total size, and rate of consumption all matter.
We've had biofuel for quite a while now.
At the turn of the 20th century, when horses were used for local transport, about 25% of US grain production went to transport fuel supply -- as horse feed. In Europe, historically, that value was closer to 33%.
Pricing these in terms of labour equivalents without mechanisation or fossil-fuel derived fertiliser and pesticides probably gives the fairest comparison.
Scaling biofuel production to present levels of petroleum consumption is entirely nontractable.
Biodiesel costs range from $300 to $1000 /bbl. That's 3-10x petroleum at its peak prices, and 10-30x its recent price of ~$30 bbl.
As an opportunistic adjunct to fuels, biomass from waste streams and some dedicated fuels production may make sense. At present scales of fuel use, it cannot and almost certainly never will compete. We'll either have to use far less fuel, or have far fewer people. Which may happen regardless.
https://www.reddit.com/r/dredmorbius/comments/2cvap7/the_int...
There are certainly implicit subsidies for oil, in the form of the externalities like health and environmental damage from the pollution emitted when using it. But it makes no sense to me to account for the work that went into creating the oil. Hordes of microbes already did that work millions or billions of years ago. It's done, it's there, and the cost of taking advantage of that work is just the cost of extraction and use.
And actually, tracing back resources to their antecedents is useful -- there are compounds which formed through biological activity (fossil fuels, limestone, most iron ores, a particularly interesting study), and elements which formed, variously, through stellar fusion (most helium in the universe, though not on Earth, for various reasons, also C, N, O, F, and a few others), supernovae, neutron star collisions, including gold and platinum-group metals (the alchemists were really out of their league...), and, if you want the antecedent of hydrogen itself, yes, the Big Bang.
There are several factors to consider, and source resource costing (solar emergy cost, or exergic potential cost) are among them:
1. Solar (or other source) emergic cost. What was the initial energy influx basis for the resource creation. For fossil fuels, Jeffrey S. Duke's 2003 paper, "Burning Buried Sunshine", provides an excellent breakdown. Humans are burning fossil fuels at the rate of about 5 million years of accumulation per year of present consumption. Given ~200-300 million years of accumulation, and at best a partial recovery rate (not all resource can be feasibly extracted), that's a quantifiably finite period.
2. Production / renewal rate. Another response on this thread looks at water. If you live in a region where rainfall levels are high, say, Seattle, with over 1,000 mm/year, you're starting with a basis of 10 million litre/hectare of water. In Las Vegas, with 100 mm/yr, you're down to 1 million litre/hectare, and have evaporation and soil absorption to deal with as well.
If you're a farmer in western Nebraska, you might want to consider that the water you're pulling from your well represents a few thousand years of accumulation per year of use. That's not going to be particularly sustainable. And figuring your costs only on the drilling and pumping costs, rather than a capital depletion allowance for the water itself, is significant.
While the work which went into creating that resource wasn't contributed by you, it's work that isn't being performed today, at rates equivalent to present usage.
An alternate formulation which might make sense (and this is similar to the description Hotelling used in his original paper, though I came up with it independently and realised that later): say you've discovered a sudden and unexpected inheritance. Not just a rich uncle, but a rich family line has died and left you an accumulated inheritance worth, well, a lot of money.
There's a restriction. You can only withdraw as much of this as you can comfortably carry at a time, it takes some rooting around to actually provide you with the cash, and you've got to take a taxi across town to the bank in order to withdraw your funds.
Does it make sense to account for your cost of withdrawal as only the cab-fare and time costs you incur directly, or to figure in the depletion value of the account itself. I'm pretty sure a bookkeeper or accountant would want to include the latter.
Your next question concerns the size of the inheritance. If it's $10,000, you might spend much of it within a few months, if you were living on it exclusively. At $100,000, a year or two, at $1 million, you could live comfortably for some years, at $1 billion, assuming you were merely spending it down, you could live out your lifetime. The size of the account matters.
(I'm ignoring pollution and other secondary effects here.)
You might even cut others in on the deal if the total value were, say, a few trillions of dollars. Which might make it run down faster.
I'm looking up total resources (that's the total material amount, recoverable or not) of coal and oil. A 1975 USGS estimate was 14.5 trillion tons of coal, and a GeoScienceWorld estimate give 3 trillion barrels of petroleum (http://geoscienceworld.org/content/global-resource-estimates...), though that I believe excludes previous consumption, which I'll assume as that again, so a 6 trillion barrel total original endowment.
If you were to consider the equivalent energy content from what humans previously relied on for biofuel, namely wood, that's ... a lot of wood. A ton of coal is roughly the same energy as a cord of wood -- about 30 million BTU per cord of oak, 14.5 trillion tons is about 13 trillion cords. And 6 trillion barrels of oil is about 7 trillion cords of wood.
Total US annual wood production is slightly less than 20 million cord / year (http://www.fs.fed.us/ne/newtown_square/publications/resource...). I'll assume global wood production is 5x that, for a nice round 100 million cord/year.
We had a 20 trillion cord total fossil fuel resource.
Swapping out that fossil fuel resource for wood production leaves us looking at 200,000 years of equivalent global timber harvest.
Again: we've consumed roughly half that -- 100,000 years of tree growth -- in just over 200 years (and most of that within the past 50). Mind that here we're not talking about input energy (emergy) but the total available energy equivalent (exergy) from fossil fuels. The input would be hundreds to millions of times as much.
(This also has a great deal to inform the question of offsetting carbon output through forestry -- we'd need phenomenally rapid plant growth, and no liberating of that carbon.)
As to your first point -- you're actually correct, we don't necessarily need to figure our cost on the basis of what it took to produce the resource we're using. We can consider the best available alternative fuels, and their cost and flux characteristics. Still doesn't look particularly promising.
Another interesting, though to me fascinating study is to look at the history of extractive resource pricing and price management over time, particularly over the past 150 years or so (the fossil fuel era). Early oil extraction especially was characterised by massive overdrilling -- the "derrick forests" of Titusvill, Oil Creek, East Texas, Los Angeles, and Kern County, all speak to that. Rising alongside this were efforts to create coordinated systems for managing that activity: John D. Rockefeller's Standard Oil, the 1931 initiation of extraction quotas managed via certificates of clearance through the highly inaccurately named Texas Railroad Commission and US Department of Interior (a fascinating history, see chapter 13 of Daniel Yergin's epic on oil history, The Prize, also https://www.tshaonline.org/handbook/online/articles/doe01, https://tshaonline.org/handbook/online/articles/mlc03, and http://www.reuters.com/article/usa-oil-export-controls-kemp-...), as well as national producers and OPEC.
Absent specific limits on rates of oil extraction, in the aftermath of "Poppy" Joiner's "Daisy No. 3" well, oil prices in Texas (and the US) fell from $1/bbl, to $0.13/bbl, and then further to $0.02/bbl, as wildcatters fought to out-extract one another, often on leases too small to individually segregate underground pools. It wasn't until government coercion, at force of arms (Texas and Oklahoma's governors called out their respective national guards, Texas also the Rangers, to sieze wellhead operations), that the overpumping stopped.
Again: without some level of collective, coercive power, the tendency was to simply suck wells as fast as possible, despite falling market prices (lower prices actually promoted ever-more-frantic pumping due to loan obligations), even if that destroyed longer-term productivity and potential of wells. Rockefeller described a similar rationale for his privately organised control system.
Hotelling's 1931 paper alludes to this in its introduction:
"CONTEMPLATION of the world's disappearing supplies of minerals, forests, and other exhaustible assets has led to demands for regulation of their exploitation. The feeling that these products are now too cheap for the good of future generations, that they are being selfishly exploited at too rapid a rate, and that in consequence of their excessive cheapness they are being produced and consumed wastefully has given rise to the conservation movement."
http://www.kleykampintaiwan.com/files/GradEco/hotelling.pdf
When you consider that under-priced energy, again, possibly by a factor of 100x to 1,000,000x, substitutes for labour and depresses the costs of virtually all other production, this becomes more than a passing concern.
But I don't see why looking at the energy used to create the resource, or the cost of creating it from scratch, is useful. All that matters today is what's there and how much we use. For example, consider oil versus uranium. In terms of usable energy content, there's a lot more uranium than oil on the planet. I haven't run the numbers, but I'm guessing that stellar nucleosynthesis of heavy elements like uranium is way less efficient than turning CHON into oil with photosynthesis and time. Certainly, if we were creating this stuff today, it would be way cheaper to create a megajoule of oil than a megajoule of U235. But, who cares? We have more uranium, so it ought to be cheaper per megajoule, all else being equal (which it very much isn't, of course).
You say that we're consuming about five million years of fossil fuel production per year, and that there's about 200-300 million years total. The rate is basically ignorable compared to usage, so what really matters is reserves divided by consumption rate. The relevant number is 40-50 years of reserves at current rates. For example, say it turns out that the geologists and petrochemists got it wrong, oil is actually much more energy intensive to produce naturally, and current reserves actually represent 400-600 million years of accumulation. The energetic cost accounting changes dramatically; each barrel of oil now represents twice as much input energy! But our economic situation today doesn't change one bit.
Taking your inheritance analogy, it doesn't matter how much money your rich family line started with, all that matters is how much is there now. It doesn't make a bit of difference to your spending whether your $10 million inheritance is the paltry remains of a $10 billion fortune, or the amazing end result of a $10 investment.
The whole business of input energy and cost to recreate just seems so very arbitrary. For example, why are you counting the cost of the oil, but not the cost of the oxygen you use to burn it? Both parts are necessary, and the fact that oxygen is ubiquitous and easy to access just makes it even more of a subsidy. Shouldn't we be counting not only all the fossil energy needed to create the oil we burn, but all the fossil energy needed to crack all that oxygen out of CO2?
Remind me again: this is Hacker News run by Y Combinator, right?
That said they certainly have a huge hill to climb, but as he said its one we all need to climb so great that they are pushing ahead with a business model to make it there
Right. What Tesla is attempting is orders of magnitude more difficult than your typical YC app shop with an exit strategy. I think they deserve a bit more slack than you seem willing to cut them. If it all blows up in their faces you can have your day with a smug "I told you so" but you won't be able to deny the benefits they've already provided to society via Musk's aggressive strategy and the effect that's had on the wider industry.
And that's fine. The founders of a company are free to specify its purpose in the company's articles. There is no legal requirement that says corporations must seek profits.
> Tesla Motors was incorporated in July 2003 by Martin Eberhard and Marc Tarpenning who financed the company until the Series A round of funding.[37] Both men played active roles in the company's early development prior to and after Elon Musk's involvement, with Eberhard the original CEO of Tesla until he was asked to resign in August 2007 by the board of directors.
Musk didn't found Tesla. That's from wikipedia.
Now, I'm on the board of a non-profit, but I can tell you that even for for-profit corporations, fiduciary duties consists of those three duties. There is no duty of maximizing profits. There's not even a duty of maximizing share prices, which is probably what you're thinking about.
To quote the US Supreme Court: "While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives. Many examples come readily to mind."[1]
Tesla needs to state their goal as "make the world more sustainable" so people becoming owners can do so with understanding of that goal. Shareholders need to back this goal. But fiduciary duty means they have to serve the interests of their principals, not that those interests are profit over all else.
Let's not play this game of "there is only one legitimate goal for a corporation". That's not true, de facto or de jure.
Yes Tesla's cars are "cool" and everybody wants one, but even the new "cheaper" model costs far more than the average person spends on a car. Right now, Tesla caters to the luxury market, and is viewed as a "cool alternative" to more traditional luxury makes.
Ford, Toyota et al, have models that cover just about every price range and every type of customer, from the extreme budget oriented to the extreme luxury sports car fanatic. Toyota owns Scion, Toyota, and Lexus for example - so if you need a car, chances are one of the Toyota offerings will satisfy your needs and budget. This opens the market potential to include just about every person.
The one thing that has worried me about Tesla for a long while, is Musk's claims that next year they'll sell 30% more cars, every year - something that's now proving to be an impossible feat. At some point, they were going to hit a ceiling of maximum potential sales as they attempted to wedge into the already entrenched high-end luxury sports car market - there just aren't enough buyers to keep that growth at these prices.
Where do you get your numbers from, because this[1] seems to be about right at the Tesla price point.
[1]: http://mediaroom.kbb.com/record-new-car-transaction-prices-r...
The Model 3 (Tesla's cheapest option) starts at $35,000, which means average price point is well above your link's cited $35,000 (remember, those prices in the link are after upgrades, very few people buy a completely stock vehicle).
You know, the same was said about the iPhone.
Citation needed.
The numbers I'm looking at are the following: http://ir.tesla.com/secfiling.cfm?filingID=1564590-16-18886&...
As of March 2016:
$ 182,482,000 in Research and Development last Quarter.
$ 282,267,000 net loss in the quarter.
So even if we got rid of Tesla's ENTIRE R&D department, they lost $100 Million last QUARTER. The primary cost of Tesla is "Selling, general and administrative", which was around $300 Million.
The only other cost that's larger than their administrative costs were the $779,316,000 spent on parts.
#1 Cost: The parts (~$780 Million)
#2 Cost: Selling, General, and Administrative. $300 Million
#3 Cost: $182 Million spent on R&D.
These numbers are per quarter.
Tesla takes in more revenue than their cars cost to build. It currently is not enough to cover all the other expenses of the company.
Tesla could stop ALL R&D they're doing and they will still be an unprofitable company.
> > They make a net profit on their cars, but they are currently investing it all into aggressive expansion
> Citation needed.
The citation is right in the statement. They make a gross profit, which means they make a profit on their cars. The in turn spend more on activities that do not involve getting cars to customers. The activities that cause the company to have a net loss are not "cost of revenue" activities. Presumably the majority of that non-revenue expense involves expansion of the company.
What the company does is reinvest the profits, instead of giving it back to shareholders. It makes a lot of sense in a growing market.
That's not outsourcing, that's distribution. Every industry in the world has similar distribution channels. They still have a large sales department.
Sorry, but you don't understand Tesla's manufacturing or that of any automaker. A large amount of the assemblies are outsourced. For the larger companies even drive trains and transmissions can be but that is rare. Ford and GM cooperated on ten speed transmissions recently so that is a benefit of such sourcing.