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Comment by pkulak | Hacker News Reader

The margins on Tesla's cars are actually very high, but Tesla is pouring an unimaginable amount of money into R&D and infrastructure right now. Gigafactories, superchargers, service centers, etc. Those are all things that VW doesn't have to worry about because they are already established.

Saying that Tesla sells cars at a loss is just another case of sour grapes by people trying to discredit what Tesla has done. Tesla could give up on the Model 3 right now, stop building superchargers and just rest on the Modle S and X to be plenty profitable. Funny though, I'm pretty sure every stock holder would prefer they keep "losing" money.

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Tesla loses money on every car they sell

This is an often repeated media trope that seems a bit misleading. It makes it sound like they would loose more money if they sold more cars. That is not true. Tesla has positive gross margins.

Tesla is investing in future production and that is part of why it is losing money. I would also draw your attention to a strange fact about GAAP accounting principles. Some investments like the GigaFactory are depreciated and the expense is spread over the lifetime of the operation of the factory. However, R&D, although it’s an upfront cost that pays off over the long term, is not depreciated. You take the full charge in the quarter the money was spent. I suspect it’s because R&D has a less predictable payoff and timeframe than an investment in a hard asset like a factory.

Another factor in Tesla’s lack of profitability is their high sales expenses (SG&A). Currently SG&A is about 20% of non-gaap revenue. At most auto companies it’s about 10%. The number of Model 3 preorders indicates that their current sales infrastructure is scalable and can support much larger revenues. At scale SG&A is likely to be a lower percent of revenue.

"Tesla loses money on every car they sell"

What data do you have on this? How is such figure(s) being calculated?

Your claim also doesn't jive with the "Secret Tesla Master Plan":

"The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model."

https://www.tesla.com/blog/secret-tesla-motors-master-plan-j...

What you've quoted of the parent, they were quoting to refute.

I don't understand. Can you say that simply?

The original poster (also) knows that quote is false and he knew that when he posted. So you and he (already) agree on this.

Thanks.

The parent used that quote as an example of something that is often repeated but seems difficult to actually justify. In other words, they were not agreeing with the quote they were disagreeing with it.

I have not looked at the filings, but R&D expenses are usually amortized much like factory equipment. At least, activating R&D as an asset is often exercised in the IFRS world.

Nevertheless, ramping up R&D disproportionally to current sales like Tesla does also incurs disproportionate costs compared to rather static incumbents.

PS: The high SG&A figures are still confounding me. In other sources, Tesla's marketing budget was said to be negligible for the premium segment.

my understanding is gaap accounting charges r&d in current quarter.

Tesla does no marketing. They are supply constrained, so there is no need to generate more demand when they can't fulfill the demand they have generated.

however, they are opening up stores and galleries. that is an expense that is typically handled by car dealerships for legacy automakers. i assume that is a big factor driving up their sales expense, and as i stated... I believe the existing stores and galleries will be able to support a lot of model 3 sales.

Why are they confounding?

The other manufacturers offload that cost onto the dealerships, who provide show rooms, sales staff, service staff, etc. AFAIK Tesla takes this on themselves.

Do Telstra split the costs of new leases, refits, transformer installs, super-charger installs - for showrooms?

Also I'd guess they are pouring a lot into training and development. Assuming they have a long term view, they'd want to retain their top sales and management staff to move them up to more senior roles in the future. This is the opposite of dealerships, where a high churn in sales staff is unquestionable doctrine.

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