http://techcrunch.com/2009/06/23/the-government-comes-throug...
You really should watch the Bloomberg Risk Takers documentary on Elon. I'm against handouts as much as anyone (it's a loan though), but try making a comment like this afterward.
The difficulties he went thru to keep Tesla afloat were outrageous. By this time he been dumping his fortune into both this and SpaceX and was essentially at the point of personal bankruptcy (ie. was friends/associates time to keep moving, no one was willing to continue investing). Note in the article the sentence "Last month, Mercedes’ parent company Daimler also invested $50 million for a 10 percent stake in Tesla." Do yourself a favor and learn what Tesla actually did to make this happen. Yes, you may have heard they retrofitted Smart Cars with the Tesla power train, but how they did that is a breathtaking example of innovation and teamwork for a company at the brink of death.
In short, this loan saved the company. This article we're discussing right now would not exist. Tesla Motors would be another footnote in history that people could point to - "automotive startups are a losing proposition, do not invest". Would you rather the government bet on a guy like Elon who's actually putting his all into carrying out on a promise to change the game, or industry stalwarts who pissed away good will by incompetence and greed?
I'm not saying government does either - TBH I don't really have faith in either the market or the government to accurately pick winners.
Exceptions I can think of are cases where individuals don't have enough info to decide (eg, a product will cause cancer, but the company can get rich before consumers find out) and Tragedy of the Commons issues (eg, every individual has incentive to pollute and only collectively do we have incentive to prevent it).
You might argue that the pollution exception applies here, but I'd still want the market involved. For instance, "the government will award $LargeAmountOfMoney to the first company who sells X vehicles meeting the following efficiency requirements..."
I dunno, Windows and Internet Explorer has been the "winner" for the past few decades ;-) By the metric you mention ("of most utility to the largest number of people."), yes, they are "high quality". By many other metrics, they are not the highest quality products.
Jokes aside, I absolutely want the market involved as well. I think the market is fairly efficient, but it has it's downsides (e.g., the great patent wars - I'd hardly call that market efficiency).
I don't think the government has all the answers - but I don't think the market does either.
I agree, but since patents are government-granted monopolies, that's really an example of government intervention rather than market freedom
>> I don't think the government has all the answers - but I don't think the market does either.
Agreed. By itself, the market can be ruthless. One proper role of government, in my view, is to ensure fair play.
Another is to provide incentives, when necessary, for research and infrastructure needed by society at large. ARPANET is a good example: a government initiative carried out by private contractors which never would have been undertaken by entrepeneurs.
But yeah. THIS is the real case of the government getting too involved in the market.
Ideally your government should be attempting to maximize everyone's utility (read:society). Private corporations are attempting to maximize their utility (In the case of modern economies: money).
Having an organization giving money to projects that are a net monetary loss, but provide a social benefit is the core reason why we have a government in the first place.
In the U.S.'s case, our government happens to do much more than this, but this is not the core of why government exists.
It may have started out as roads, bridges, defensive structures, and irrigation systems. But the CDC is well within that domain.
This is not to day that we should or shouldn't take these things away (or add more, for that matter), but that the core of government's purpose is social order for its citizens.
Take the US government remove the Air-force and you still have a functional government. In fact, we would still have the largest and most powerful Air force due to the Navy. But, that does not mean the Air force is worthless or even that taken in it's entirety it's a waste of money. And a lot of people want the Airforce which in a democracy means a great deal.
The real question is not how you can make a smaller government, but how you can have a better society and those are not always the same thing.
You state that it is difficult to have social order without welfare and social security, because the poor and elderly would be dying on the streets. This example doesn't dispute my core argument that government provides social order. In fact, it supports it, showing that social order is necessary and provided through government.
Remember, I argue that the core function of government is social order (which you seem to agree with), and that the primary means of providing this order is through police and military. I agree that there are other secondary means of providing social order (welfare and social security), but they can all be linked to the primary means of social order.
Here is an example: Let's say that we do not have any form of welfare or social security (America didn't for nearly half of its existence). When times get particularly tough, the poor may start stealing more in order to survive (notwithstanding the impact of food banks, churches, and other charitable organizations). If theft goes up, the government's primary means of providing social order is strained, because police must protect against more thieves.
Here is how I support my claim that police and military are the primary means of providing social order. Can our government exist without welfare? It has. Can it exist without the public school system? It has. A government that ONLY created and enforced rules is still a government. A government stops being a government if it cannot create and enforce laws, even if it provides all of these other things, will quickly fall into anarchy. Why pay taxes if there is no threat of imprisonment?
It is particularly pointless because "being a government" is not an interesting measure outside of the realms of philosophy and ideology. There are very many governments that would have done the world a great service by ceasing to "be a government".
Personally, I'd argue that a government that provides no welfare are often a net negative - many of the early nation states saw enormous societal harm resulting from law enforcement and military being used as a bulwark against the effects of the lack of working welfare systems.
E.g. I'm from Norway. A large proportion of the Norwegian emigrants who settled in the US (like the Irish) came during periods of extreme poverty and often starvation in Norway (Norway didn't become wealthy really until oil finds in the 60's, and until at least the 20's it was really a quite poor country). Poor people could get forcibly put to work in poor-houses, as they were in many other countries. Yet the state at the time used the police to restrict emigration:
You needed permission, or you could get thrown in jail for trying to leave. It was seen as essential in order to provide social order. As it was in many other countries.
> Here is how I support my claim that police and military are the primary means of providing social order. Can our government exist without welfare? It has. Can it exist without the public school system?
Can it exist without government run police? Many governments have historically largely deferred policing to volunteers (UK for example, where volunteers still have a role in policing). Without military? There are examples of that too - the modern nation state with standing armies is a relatively new invention and prior to that at least some societies had what amounted to functioning governments without military or police - Iceland, for example, which had a functioning parliament and established laws and court system for hundreds of years before it got a government run police and military.
While the nature of a government that is not a monopoly provider of violence and force is by necessity very different, that does not mean they can not exist.
So for example, if you look at HP's write down, they were operationally cash flow positive for the quarter but are 'writing off' 8+ billion dollars. So they "lost" over $8B this quarter. Aka not profitable during the quarter.
So the milestones you look for as a company are that you are cash flow positive for the day (all of todays costs covered by revenue), cash flow positive for the quarter (net increase in cash on and over the quarter) and cash flow positive for the year (net cash increase for the year), and finally profitable (total income exceeded all costs, both tangible and intangible (like depreciation)).
I'm having trouble parsing the examples given in this thread; the above sounds like what I more-less understood from them.
So e.g. during the housing bubble, some companies were cash flow negative (i.e. losing money on their day-to-day business), but they recorded a profit for the quarter because the buildings they owned were worth more at the end of it than they had been at the start.
A business might have customers on a monthly plan, paying $2000 over their entire lifetime. If it costs $1000 in sales and set-up expenses to get a customer, they are profitable. But the expenses have to be paid up front, whereas the income will trickle in over a long period.
This means that even profitable companies might need to take loans or raise financing if they need to pay for expenses now, but the income from those sales arrives in months or years down the line. A cash-flow positive company doesn't have the risk of running out of money while waiting for the profits to come in.
Ideally, profit abstracts away all the messy details of cash flow. If you buy a new robot, that's not a loss, that's an investment, so your profit shouldn't change (until the robot starts depreciating). So profit (not cashflow) is a better metric. On the other hand, you don't know that the robot will really be useful, so maybe cashflow is better.
Profit is what's called Net Income (for argument's sake, let's do EBIT--Earnings Before Income Taxes). Cash flow is simply your delta in cash from one period to the next.
Lots of things go into net income, but essentially it's revenue minus costs. Because of GAAP (Generally Accepted Accounting Practices--only in the US), you recognize revenue when it is earned not when it is collected. So, let's say you buy a car and you pay $5,000 down on a $30,000 car. The car company records revenue of $30,000. In their balance sheet, they also add $5,000 to cash, and $25,000 to what's called Accounts Receivable. Their cash flow is now $5,000.
Let's further say that they owe payroll, to the tune of $10,000 for that month. And you were the only poor bastard that bought a car from them that month. They have to pay $10,000 in cash for payroll, and that also gets logged as an expense. So, their profit shows a $20,000 net profit, but they have -$5,000 in cash flow.
You can extend the example to make it positive for a company that's not profitable, if you'd like.
OP, you'll also see EBITDA, which is Earnings Before Interest, Taxes, Depreciation, and Amoritization.
1) Niche high cost vehicle sold in low volumes(Roadster)
2) Medium cost luxury vehicle sold in medium volumes(Model S)
3) Low cost high volume vehicle sold in high volumes. (Model ???)
Obviously this is a gross over simplification but I imagine that part of the engineering that is going on at TESLA is figuring out how to build 3 cheaper and at a higher quality then anybody else.
Aren't they already trying to do that? Chevy's Volt, Nissan's Leaf, Ford apparently makes a fully PEV Focus now, as does Honda with a version of the Fit, and Toyota's gotta be working on the Prius...
Renault have a small electric hatchback going on sale in the spring in the UK at £13,650 (including a grant):
http://www.telegraph.co.uk/motoring/car-manufacturers/renaul...
Personally, I'd be far more likely to buy a small electric hatchback than any of the Tesla models.
What Tesla has done is made an electric car and marketed it as more luxurious and different from what's on the market. The Leaf is for hippies, the Volt is nowhere to be seen. The Tesla on the other hand is sexy.
A bigger concern is how Tesla will expand from this market. For most manufacturers, the high-end cars are not the major money-makers, and the quantities they move are just too small (Lexus sells over 8 IS/GS for each LS they sell). We'll see if they manage to expand from the niche they're in.
The Nissan Leaf just isn't a good deal. If Tesla can beat range anxiety in a package that costs $20k or less, then they'll have a winner. Sexy still sells with econobox cars. (Fiat 500?)
I really doubt this. This is the classic innovators dilemma. The investments in electric don't look good enough yet for the car companies to go "all in". Their entire supply chain is built around making and selling cars that run on gas engines. Tesla isn't beholden to any kind of entrenched thinking and thus can build up an advantage here that is going to take the big car companies a while to catch up to once electric cars go mainstream. (http://dl.dropbox.com/u/120/Screenshots/innovators_dilemma_c...)
It's one of the examples of patents being done right, to protect innovation.
That is a disadvantage. Along with their size that represents massive costs and massive inertia.
The actual threat from incumbents is regulation(lobbying for) and legal. Both of which they can afford due to massive size and have established the "infrastructure" for.
Mission accomplished and all that.
They will pull every dirty trick in the book, i.e. Laywer up, before they build a competing car to the Model S. (see Tucker 1948: http://en.wikipedia.org/wiki/1948_Tucker_Sedan)
Then there are more modern scenarios like the Bricklin (http://en.wikipedia.org/wiki/Bricklin_SV-1) and the DeLorean.
All of those never made it as far as Tesla has, for a lot of reasons, but failed mostly the Big Three's stranglehold on the market. In the Bricklin's case I would point to the parts/supplies cartel at the time.
Elon has a good opportunity in today's market with the decline of the Big Three's influence.
</snark>