Is it just the stock is considered by some people to be simply overpriced, or is Tesla the company in danger of going bankrupt? I'd like to get a Tesla, but I worry about the company going under and being left with a car that has no resale value or ability to be maintained.
Not immediate danger, but Tesla has never made a yearly profit in this entire decade. The two profitable quarters (Q3 2018 / Q4 2018) were completely wiped out by awful performance in Q1 2019.
If things keep going the way they're going, I'd estimate Tesla only has maybe till 2022 or 2023. That's enough time to turn the company around, but you can only lose billions-of-dollars / year for so long before the whole shebang collapses.
My 2022 estimate is based on two things:
1. December 2020 is SolarCity's last bond. Most likely, Musk will find a way to avoid paying for the bond IMO (probably rolling off SolarCity as a subsidiary or something), limiting the damage to Tesla.
2. March 2021 is the next major bond repayment, initially taken out for the Nevada Gigafactory. Musk is pretty good about raising money, but after shenanigans with Dec 2020, I'm not sure if the market will be so forgiving. Banks would rather him succeed however, so I expect a kind of "One last chance" here.
3. March 2022 is the next major bond repayment.
4. If Tesla survives past 2022, they have over a full year before 2024 and 2025 bond repayments kick in again.
Tesla's next major tests are about whether or not they can pay back the 2021 / 2022 bonds. Well, not necessarily "pay back", but they should be making a profit and not just "borrowing more money to pay off older bonds". If the market realizes that Tesla is exponentially losing money here, they'll be in a bad spot.
That gives all of 2020 for Tesla to turn around. The Model 3 has proven unprofitable in the USA, the only hope is Chinese sales through the $5 Billion Gigafactory 3. Not exactly a bet I want to take (if the technology is unprofitable in the USA, why would it be more profitable if you made a similar factory in China?? Musk should have focused on profitability in Nevada before expanding...
Tesla's 2019 Bonds were initially 0.25%. They were rolled over into 2.00% bonds due 2024. Furthermore, Tesla paid hundreds-of-millions of dollars for this opportunity. I've seen estimates suggest that the "real" price (once the hundreds-of-millions are factored in) suggests a "real price" of ~8% on the 2024 bonds. (That is, pretending that the hundreds-of-millions Tesla paid for the opportunity to borrow money is instead "part of the bond", and suddenly the 2% bond is really closer to a traditional 8% bond).
https://www.bloomberg.com/news/articles/2019-05-03/tesla-rai...
Look: I get it. They didn't make money from the Nevada Gigafactory and needed the cash severely to fund Gigafactory 3 in Shanghai.
I'm just saying that when all of this debt hits them come 2022 (let alone the 2024 "recycled" debt to pay off 2019) Tesla will be in a much worse position.
https://ir.tesla.com/node/19496/html
The above 10k reports a $976 Million loss for 2018. If you want to "Ctrl-F" something, try "Net Loss", which should bring you to the $976 Million loss in the financial sheets. Or search for "(976,091)", which is the precise number in that 10k for their Net Loss.
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The 10Q reports (quarterly) for 2019 aren't much better.
Q1 2019 reports a $702 Million loss (in ONE quarter!!): https://ir.tesla.com/node/19771/html
Q2 2019 reports a $389 Million loss: https://ir.tesla.com/node/20111/html
H1 2019 has lost $1.09 Billion loss, and there's 2 quarters left in this year. Even if Q3 2019 ends up profitable (and I find that unlikely), there's basically no chance for 2019 to be profitable either.
Tesla has bet it all (again) on Shanghai Gigafactory 3. The Model 3 rollout to the USA has been wildly unprofitable, Tesla needs to sell significantly more vehicles at significantly higher prices.
Gigafactory Shanghai will arguably help, but that's another $5 Billion bet, and Gigafactory 1 isn't even paid off yet. (Gigafactory 1 was paid with debt due 2019 and 2022. The 2019 debt was rolled over to 2014, and 2022 isn't looking too hot IMO).
Tesla has time to turn things around before 2022. Although, maybe Musk can pull a Musk again and convince everybody that the company is worthwhile and all the bondholders offer another $Billion loan. Clearly it worked for rolling over the 2019 debt, but I have my doubts that it will keep working.
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EDIT: Elon Musk likes to confuse the issue by talking about "Gross Profits". Yes, Tesla has a "gross profit", but most people don't actually know what that means. When people talk about "profits / loss", they typically mean "net profit".
The TL;DR is that financial sheets talk about 4 kinds of money: Revenue, Gross, Operating, and finally Net. "Net" is the bottom line, while "Revenue" is every dollar that ever came into the company (usually sales).
Gross (aka "Gross Profits") subtracts "COGS", cost of goods sold. Operating (aka: Operating Profits or EBITDA) subtracts marketing / sales / other costs, and finally "Net" subtracts out debt and taxes.
So Musk confuses the issue because he talks "Gross Profits" when most CEOs really talk about "Net Profits".
The three sheets of importance are:
1. Balance sheets -- Assets vs Liabilities. A listing of all of the debt, factories, cash, etc. etc. and an estimated dollar value on everything. Add everything together, and you have the rough value of the company, the so called "Equity".
2. Income Statement -- Calculates Profits (or in this case, a loss), which is roughly a "Change in Balance Sheets". "Net Profits" means balance sheets are more towards +Assets, while "Net loss" is balance sheet had more +Liabilities.
3. Cash Flow -- How much money is in the bank. Start with the Income Statement and "reverses" the calculation to get to actual $$ flowing in or out of their bank.
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When a business-folk says "profits", they talk about #2 being positive. But when colloquial people mean "profits", they typically mean #3. Understanding the difference between colloquial "Profits" (which is really Cash Flow) vs "Business profits" requires a good bit of study.
If Tesla pays for a $5 Billion factory (ex: Gigafactory Shanghai), you'll have -$5 Billion Cash Flow, but $0 in income. Because -$5 Billion cash becomes +$5 Billion factory in the asset sheets.
https://www.roadandtrack.com/new-cars/a28819221/tesla-roadst...
>There are unique challenges that come with working on these cars. You might have to rebuild a circuit board one day, and fabricate a new hood the next day. Actually, if any body parts are damaged, you'll have to fabricate them. Tesla doesn't sell parts to anyone, so Medlock has taken to fashioning new panels out of carbon fiber himself.
That said, considering how good Tesla isn't at supplying parts to their own shops (let alone the aftermarket) having Dorman (or whoever, but this would be a very Dorman thing to do) acquire all the body dies at some post-bankruptcy liquidation sale and start cranking them out from a factory in China could very well wind up being better for parts availability than the current situation.
If Tesla is acquired I would imagine it would be for IP; I could easily see the brand going away with the billions of debt.
The problem isn't the "stock". It's the financials of the company that are an issue.
>simply overpriced
If you think they'll have half a million self-driving, appreciating robo-taxis on the road next year, it's probably cheap. I happen to think that ain't gonna happen.
>is Tesla the company in danger of going bankrupt?
16 years of losses so far. But they've been able to continue to find financing for now. That (We)works until it doesn't.
I own a M3 and I do think it's really an underpriced car for what it offers. With the new v10 update I've spent a few nights watching Netflix in my garage and it's such a great experience - who needs a theater room in the house? Tesla can (and should) raise the prices of the M3 by 10% and I believe they'll still be able to sell.
I think it’s cool that Tesla is finding new ways of getting value out of their cars, but to answer your question: Many people would prefer a proper theater or music experience. Also, while Tesla’s sound quality is among the best out there for cars, no car audio can hold a candle to the music (or theater) sound quality you can get from large high-quality speakers (far too large to fit in any car) in a well-damped room (with acoustic treatments if necessary, e.g. if you have hard floors or too many windows).
You could install the best speakers in the world in a car, but it would still sound worse than in an average house due to all the acoustically reflective surfaces at many angles (e.g. glass) and oddly shaped compartment which distorts the sound in ways that cannot be perfectly corrected even with DSP.
I don't think profit will be the focus for a while as they keep investing in new tech, new factories, new product lines. All of those things will increase the potential for Tesla and its stock.
Back seat quarterbacking.. but they might want to strategically focus a little bit on profit though (show profit -> get added to S&P 500 -> more stable stock price).
Pay for a $5 Billion factory, and it cost you $0 in terms of profit.
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A $5 Billion factory will cause $5 Billion of negative CASH FLOW. But it won't actually change "net profit" at all. Tesla is losing money at the operational level: their superchargers and high-end mall space is too expensive, and their margins are too thin.
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On the asset sheets, consider what happens when you pay for a $5 Billion factory. You lose $5 Billion in cash, but you GAIN a $5 Billion factory. So +$5Billion factory - $5 Billion cash == $0 on the bottom line.
The goal isn't to turn a profit next year. The goal is to become a bigger company than Apple, to wipe out entire car companies in the process, and to change how we power the cars we drive.
Because there's a very good chance you go bankrupt in year 3, turning your $1.00 into $0.00 instead of $15.
> Being "profitable" is irrational and stupid. [...] Profitability is a very narrowminded view of how to run a company.
What a weird, weird thing to say. As if it were straight out of the Silicon Valley TV show.
It’s different than the scenarios parodied in Silicon Valley, where companies with no business model, who can’t be profitable with their product, posture in order to be acquired to the extent that their founders believe the posturing.
I'm familiar with the discounted cash flow model of valuing a company. You're missing the point: If they keep losing money, they need more investments. At some point, they won't get any more investments, because potential investors won't believe that the company will be profitable in the future.
> [...] it has a good chance of making a lot more money by continuing to invest in itself.
Only if they don't go bankrupt in the near future, which is a very real possibility. Then all this talk about growth and "investing in itself" will be useless – they will make zero money.
At the moment, Tesla seems to have no real trouble raising the kind of capital they need in order to maintain the level of growth they're experiencing. But it's going to take a lot more growth before they're on par with GM or Toyota or the like. And since that's the obvious goal, it's foolish to be "profitable".
Now you'll say that Amazon __could__ have turned a profit earlier than that. Which is true. For Tesla it is not, turning a profit isn't an option. The difference being that selling books and other things on the internet is relatively easy compared with manufacturing cars using an entirely new set of unproven technologies and techniques.
So if we use that model to think about Amazon overwriting retail, then Tesla would be looking to overwrite transportation. Given the difficulties of doing the latter I would expect Tesla to flounder around for another 10 years before it really starts to get going.
After that, if they get there (big if), the sky is the limit and the market is Teslas market. That's the point behind the "being profitable is irrational and stupid" comment. Penny wise, dollar stupid.
But as it has been pointed out ad infinitum, it's a big gamble. So far Tesla has delivered on product, they'll need to prove that they can deliver on operations for this thing to take off all the way.
Juries out, but I'm willing (and do) bet that they'll make it. Too many people (including banks and governments) want this to work.
Tesla's annual depreciation outpaces their capital spending, so they aren't even spending enough to maintain their current assets. Last year they missed their planned CapEx by something like $1 billion. Also not something a "growth" company does.
That's because they are (and have been) in a precarious financial condition for almost their entire history, only made worse by the recent acquisition of an insolvent solar company in order to bailout you and your family members financial stakes.
It took Amazon about 12 years to get to the same revenue/income balance... http://infographic.statista.com/normal/chartoftheday_4298_am...
There is very high operating leverage in Automotive manufacturing. Hence why this cycle continues forever:
Elon: That's it, we don't need to raise anymore outside capital! 9 months later: Insert equity/bond/convert raise here.
Before they ramped up their Model 3 production, they could have become profitable just manufacturing and selling Model S.
Instead they invested in a new model and its production lines.
If they need to become profitable at some point (because they run out of investors), it seems plausible that they could do that simply by producing and selling their existing models, and not come out with a new model for a while.
(I realize this hinges on a lot of assumption, like continued demand, stable margins etc., hence I don't think it's automatic that they will be profitable, but still plausible.)
By that measure, Tesla is about a third of the size of Ford & GM. (50Billion vs 150Billion)