What if they can't keep the lights on?

Rich M

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#1
Just playing devil's advocate here. Suppose we're at the end of 2018, the ramp up remains stagnant, the bonds don't recover and the debtors are calling. Tesla is out of money. What is the likely scenario?
  • Bankruptcy protection, but keeps making cars?
  • Bankrupt, boarded up and assets sold off?
  • Another Silicon valley company buys them?
  • Another Automaker buys them?
  • Elon open sources all the code and posts it online?
With everything so intensively software controlled, what would happen to the existing cars?
  • The cars keep running but 3rd parties start making replacement parts?
  • Without specialized Tesla service tools & software does any software problem that prevents the car from driving result in the car being scrapped on the spot?
  • LTE modems are disconnected by the wireless carrier since no one is paying the bill, no more remote management of the car, traffic/maps, streaming audio.
I'm imagining roving bands of Tesla owners, cars looking like Mad Max, converging on Fremont... :eek:
 

garsh

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#2
First, I don't think Elon will have any problems raising more money if needed. Ignoring the burning pile of cash, they have a good product, demand for it that they can never hope to satisfy, they actually have great margin on each incremental car produced, and that margin is rising as they build more cars.

Musk almost sold Tesla to Larry Paige in the past. If it really gets that bad again, I think we could see Tesla become another Alphabet company.
 

Rich M

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#4
Both good points, but after the half-billion (junk) bond raise earlier in 2017, it's going to be tough raising more. I'm along for the ride, I just hope it's a good one.
 

NoVADrew

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#7
I tend to not overreact to this stuff, but today is one of the first day's that I've given pause to whether I would immediately act on my reservation (whenever it ultimately arrives) without hearing more from Tesla about their plans to remain solvent.

Don't really want to buy a beta car from a company that's about to go bankrupt, no matter how much I love Tesla and how many years I now have invested in this wait.
 

c2c

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#11
This is crazy talk. Assume Tesla does a total of 100,000 Model X and S this year, and stays flat at 1000 Model 3s each week for the rest of the year. Cost of Production for Tesla electric cars is rumored to be less than 80%. that means Tesla clears $2,000,000,000 ($100k/car x 20% x 100,000) for X & S, and $400,000,000 for the Model 3. ($50k/car x 20% x 40,000). $2.5 billion above the costs of production should be more than enough to make the interest payments alone and keep the lights on.

There is a periodic movement, like a tide, in most of the last 18 months (except 2 months), where the Tesla stock price the last week of the month is less than the stock price at midmonth. I don't know why, but it is in the data. we are in that last week of the month.

Next week sometime we should have hard numbers on Model 3 production, which should calm some nerves.

The Model X accident is horrible, but the NTSB's interests seem to be on crash response and fire suppression. I don't see evidence of anything flagrant about the autopilot. In life, there are some things that we will never know. the frontend destruction may never provide answers on how autopilot plays into the accident. The NTSB can look into many aspects, and maybe come to some improvements. Even if the NTSB shuts down autopilot. the cars are still great.

In both the Arizona Uber tragedy and the Model X crash, we cannot rule out that the deceased human made an irrational choice. It could have been simply stepping into the road at a bad time, or making a last instant decision to take an exit. Much as we can't rule out irrational choices result in many of the 10's of thousands of traffic deaths each year. If society finds there can be practical safety improvements, then we pursue those.

I pulled out the cash I need for my model 3 when the stock was at $350. And since I bought in Sept 2010, my model 3 is free. So at a minimum I am buying one.

Do me a favor. You can cancel your reservation and get out of my way. You can sell your Tesla stock so I get a better price when I ride it back up. But Please Take a Deep Breath.
 

NoVADrew

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#12
This is crazy talk. Assume Tesla does a total of 100,000 Model X and S this year, and stays flat at 1000 Model 3s each week for the rest of the year. Cost of Production for Tesla electric cars is rumored to be less than 80%. that means Tesla clears $2,000,000,000 ($100k/car x 20% x 100,000) for X & S, and $400,000,000 for the Model 3. ($50k/car x 20% x 40,000). $2.5 billion above the costs of production should be more than enough to make the interest payments alone and keep the lights on.
Wow, what an incredible misrepresentation/lack of understanding of the company's financials.

First off, "cost of production" isn't a rumor. It's a verifiable number called profit margin reported in the company's quarterly filings. You calculated a $2.5B gross profit on Tesla vehicles, which is slightly better than the $2.2B gross profit they earned last year, a year in which they lost $1.96B overall.

Gross profit is great, but from there you deduct Teslas's $1.4B of R&D expense, $2.47B of SG&A expense, and $471M of interest expense, among a few other items. And that was just for 2017. All of those items will grow for full year 2018. On top of that, they spent $4B of cash on CapEx last year, a number they said would grow slightly this year.

The path to keeping the lights on is quite simple. They need to get to 5,000 cars per week at their guided 25% profit margin as fast as possible (hopefully by Q3). That makes them profitable, but it doesn't solve the lack of cash problem. From there, they can do another capital raise to pay for CapEx expenditures and grow the company. If they sell 1,000 cars/week through the end of the year, they are done.

https://finance.yahoo.com/quote/TSLA/financials?p=TSLA
 
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c2c

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#13
Extrapolating 2017 activity onto 2018 activity is a stretch for me. Much of model 3 activity has been nonrecurring. They are not launching another model 3 production line, until they are capacity constrained. For 2018 they need to build cars. Those cars are paid for in 2018.
 

NoVADrew

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#14
Extrapolating 2017 activity onto 2018 activity is a stretch for me. Much of model 3 activity has been nonrecurring. They are not launching another model 3 production line, until they are capacity constrained. For 2018 they need to build cars. Those cars are paid for in 2018.
Okay. Well the cost of building out the Model 3 line (i.e. CapEx) does not go through their income statement. That's just a cash flow item. Regardless, the company stated in the most recent investor letter: "Capital expenditures in 2018 are projected to be slightly more than 2017." So, they plan to spend more than $4B on CapEx in 2018.

As to their income statement, they said: "As we ramp production of both Model 3 and our energy products while keeping tight control of operating expenses, our quarterly operating income should turn sustainably positive at some point in 2018." Operating expenses include the aforementioned R&D and SG&A of around $1B per quarter. I believe they said on the last investor call that the goal was to keep operating expenses stable, or only rising a bit, in 2018.

So, I mean, that's it... 2017 activity is the most company-friendly way to look at 2018 projections. They need to overcome $1B a quarter in operating expenses and $150M a quarter in interest on debt. Can they do this? Hopefully, but the only path to do so is to sell 5,000 Model 3s per week with a profit margin of 20-25% (which they are aware of). Any boost they can get from the expected 3x sales in storage products should help them get there too.

I'm very pro-Tesla but it is definitely crunch time for the company and that should not be ignored.
 

Rich M

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#15
Do me a favor. You can cancel your reservation and get out of my way. You can sell your Tesla stock so I get a better price when I ride it back up. But Please Take a Deep Breath.
I'm giving them as much benefit of the doubt as possible because the 3 is the only car I'm interested in, and this is truly the way I want transportation headed in the future. I'm fairly sure they will make it through, but I don't think "How dare you question the company's shaky financials - you don't deserve one of their finest automobiles" is the right response.

It's only fair for the owners to look for reassurance that there's some contingency in place.

$230 Million debt needs to be paid by Nov, and close to 1 billion is due in exactly 1 year (Mar '19). Knocking on Wall Street's door saying "Look how cool we are, can we have some more money?" will only work so many times. (Hopefully once more)
money.gif
 

LUXMAN

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#16
I tend to not overreact to this stuff, but today is one of the first day's that I've given pause to whether I would immediately act on my reservation (whenever it ultimately arrives) without hearing more from Tesla about their plans to remain solvent.

Don't really want to buy a beta car from a company that's about to go bankrupt, no matter how much I love Tesla and how many years I now have invested in this wait.
That is what we have to worry about....people seeing the shorts on the news or believing CNBC and they bail on buying the car causing a cascading effect.
I don’t think it will happen but you can never tell in this new media driven world!
 
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#17
I've been worried about this for different reasons. I have had my invite for close to a month now. I'm waiting for AWD but I'm getting nervous. I've seen the 3 up close and personal and I know it's the car I've been waiting for. I don't want to miss my opportunity to get one even if the worst happens and Tesla goes under. Anyone, who knows financial statements better than I do... What's the timeline for the worst case scenario? How soon could all this happen? What would be the events that would trigger this to happen? We all obviously hope production starts to crush it, but I want to know what to watch for just in case.
 

LUXMAN

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#18
I've been worried about this for different reasons. I have had my invite for close to a month now. I'm waiting for AWD but I'm getting nervous. I've seen the 3 up close and personal and I know it's the car I've been waiting for. I don't want to miss my opportunity to get one even if the worst happens and Tesla goes under. Anyone, who knows financial statements better than I do... What's the timeline for the worst case scenario? How soon could all this happen? What would be the events that would trigger this to happen? We all obviously hope production starts to crush it, but I want to know what to watch for just in case.
While I cant answer those questions, I must say that I don't think that will happen. You have Elon Musk running things. He knows who to put in the right places. He didn't build Tesla by himself. He knows how to execute. He has a master plan, but to build this whole ecosystem out takes time and lots of $$$$. I for one believe in the mission and am glad to have been able to contribute by buying a Model 3. I wish I could do more. Full solar with 2 powerwalls and a pick up (later) if I could.

Ya know there are all of these shorts and haters....I guess I understand the shorts, but I don't understand the haters in the US.
Here you have a man in the US who is trying to build a new company with American workers and ingenuity, to build the most American car.
Yet they are hoping he fails. I think it is Un-American. You don't have to buy his stuff. Keep loving your MoPar and that is fine. But as an American you should what him to succeed.

Anyway, this car is a great product. And that is what you will see. Honestly, I was driving home yesterday and I thought "how is this car only costing this much?" It is solid, fun, beautiful, and fast. (faster if you get RED).
Hopefully people will see that and momentum will build along with the production ramp
 

NoVADrew

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#19
That is what we have to worry about....people seeing the shorts on the news or believing CNBC and they bail on buying the car causing a cascading effect.
I don’t think it will happen but you can never tell in this new media driven world!
Sorry, but I'm not basing my concerns on "seeing the shorts on the news" or watching CNBC. I'm an accounting and finance professional with many years in practice. I can read a financial statement for myself, which to be blatantly honest, it appears that very few people here have done or know how to do judging by the posts above.

Tesla's business argument for the past 1.5 years was that they wouldn't need a new capital raise for Model 3 provided production goals were met. Here's a quote from a Bloomberg article that summarized the Q317 earnings call:

So long as Tesla gets out of what Musk called “production hell” and gets to 5,000 cars a week by the end of the first quarter, the impact will be minimal, Musk said.

Ok, so Q1 is over and they aren't at 5,000 cars per week. They might not even be at a sustained 2,500 cars per week. The impact is no longer minimal per Musk's guidance. They have to actually make money on all the equipment they just paid billions for.

So what do they need to do? (1) Show major sustained production progress and a clear plan to get to 5,000 cars/week this quarter; (2) probably also show growth and profit margin improvement from storage; (3) show that they have kept their SG&A expense from continuing to grow uncontrollably; (4) address quality concerns; (5) and put out the proverbial fires from the latest Autopilot death and recall. Then they need to go to the market and do another capital raise.

I've been worried about this for different reasons. I have had my invite for close to a month now. I'm waiting for AWD but I'm getting nervous. I've seen the 3 up close and personal and I know it's the car I've been waiting for. I don't want to miss my opportunity to get one even if the worst happens and Tesla goes under. Anyone, who knows financial statements better than I do... What's the timeline for the worst case scenario? How soon could all this happen? What would be the events that would trigger this to happen? We all obviously hope production starts to crush it, but I want to know what to watch for just in case.
Tesla has ~$200m of notes coming due in November and ~$900m coming due next March on top of their planned capital expenditures. That means they'll need to do a major capital raise by the end of the year most likely. Their current cash will probably run out in the next 6 months if nothing is done. The main problem now is that as their stock drops, a capital raise causes more dilution to existing shareholders. You want to do a capital raise when your stock is as high as possible because you have to issue a lot less new shares to get the capital required. That's why they need to address all the issues I outlined above quickly to get their stock price to rebound and give investors confidence. In addition, they need to stop all this bad news from snowballing any further. I do think they can get out of this mess, but I would like to see Elon's plan for doing so before moving forward with my order.
 

Daliman

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#20
Tesla is a young company trying to do two seemingly impossible things, survive without bankrupcy and mass produce EVs. The financial situation now is challenging but can be overcome if they simply produce 5000 M3s a week. The time to hit that target matters, but as long as there is real progress I think the stock will rebound. I wish that they had chosen for the 3 and will chose for the Y just to make the battery and powertrain. Magna could more reliably build the rest without the Capx.
Bankrupt, not likely unless M3 continues at 1000 a week for a year. Capital would be more costly expansion would slow.
Worst, worst case I think Alphabet buys them and keeps all of the engineering staff while farming out future production. The fanatic base, GF, Freemont, the SC and dealer networks are very valuable assets. No one will be left at the side of the road.