Topic: Tesla Losing $4k on Every Car Sold

[rrocket]

Losing $4k per car on a new model/technology isn't generally a big deal for most manufacturers. The losses can be spread out over the profitable models to make the hit less painful. But it is a big deal for Tesla when it's the only car they manufacture.

http://www.reuters.com/article/2015/08/09/us-teslamotors-cash-insight-idUSKCN0QE0DC20150809

[Noto]

    Musk has taken investors on a thrill ride since taking Tesla public in 2010. Now he's given himself a deadline, promising that by the first quarter of 2016 Tesla will be making enough money to fund a jump from making one expensive, low volume car to mass producing multiple models, and expanding a venture to manufacture electric power storage systems.

That's why I was perplexed with the push for the Model X over the Model III...

[EV-Light]

This is interesting...if they are really losing $4k/model, I'd bet they could bump up the prices by $5k without affecting the desire for their cars - the target customer here doesn't really mind paying that much more for a Tesla. So I am not sure I truly believe in the analysis that has been provided.

[OliverD]

    Musk has taken investors on a thrill ride since taking Tesla public in 2010. Now he's given himself a deadline, promising that by the first quarter of 2016 Tesla will be making enough money to fund a jump from making one expensive, low volume car to mass producing multiple models, and expanding a venture to manufacture electric power storage systems.

That's why I was perplexed with the push for the Model X over the Model III...

Why? If they're losing money selling $80k+ cars, they're just going to lose even more by trying to sell $40k cars.

[OliverD]

This is interesting...if they are really losing $4k/model, I'd bet they could bump up the prices by $5k without affecting the desire for their cars - the target customer here doesn't really mind paying that much more for a Tesla. So I am not sure I truly believe in the analysis that has been provided.

I think it's more likely that they are foreseeing reductions in production costs as their technologies mature.

Tesla is a growth company. Growth companies don't necessarily care about making a profit. Rather, they increase revenue. Look at CRM's stock over the last five years. Little to no profit but 30% revenue growth translates to a lot of growth in their market cap.

[Noto]

This is interesting...if they are really losing $4k/model, I'd bet they could bump up the prices by $5k without affecting the desire for their cars - the target customer here doesn't really mind paying that much more for a Tesla. So I am not sure I truly believe in the analysis that has been provided.

I'd like to see the actual figures to support this article.  I mean, if Bossman spent $142,000 on his P85D, no way Tesla lost money on him.

I have a feeling this is throwing in all costs associated with manufacturing and setting up the Superchargers, which can't be cheap, and then divides it by the # of Teslas on the road.  To shareholders, it matters in the short run, but in the long run, this is the cost of starting a (relatively) new business.

Why? If they're losing money selling $80k+ cars, they're just going to lose even more by trying to sell $40k cars.

Not true at all.  Scaled costs, sales volumes - again, it's not that it costs $84,000 to build a car that is sold for $80,000...it's that there's a cost to building superchargers and the Gigafactory thing for the batteries.  This is a sly article that manipulates data for the short-term over the long-term gain.

This is a classic case of Dodge Brothers v Ford.

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

[OliverD]

Why? If they're losing money selling $80k+ cars, they're just going to lose even more by trying to sell $40k cars.

Not true at all.  Scaled costs, sales volumes - again, it's not that it costs $84,000 to build a car that is sold for $80,000...it's that there's a cost to building superchargers and the Gigafactory thing for the batteries.  This is a sly article that manipulates data for the short-term over the long-term gain.

How do you know it's not true? Obviously there are savings to be had that come with scale but the Model 3 is not going to be instantly profitable. And that's why they're starting production of the Model X first.

[Noto]

How do you know it's not true? Obviously there are savings to be had that come with scale but the Model 3 is not going to be instantly profitable. And that's why they're starting production of the Model X first.

It doesn't have to be instantly profitable - it just has to be used to share the production costs of the supercharging stations/gigafactory, etc.

If Tesla sells 100 cars (e.g.) at $100,000, or 200 cars at an average transaction price of $50,000, the lower volume would yield $10,000,000 whereas the higher volume would also yield $10,000,000.  Though the profit isn't any higher, the operational costs are spread between more vehicles and this useless statistic of "$ lost per vehicle" would be halved.

[OliverD]

How do you know it's not true? Obviously there are savings to be had that come with scale but the Model 3 is not going to be instantly profitable. And that's why they're starting production of the Model X first.

It doesn't have to be instantly profitable - it just has to be used to share the production costs of the supercharging stations/gigafactory, etc.

If Tesla sells 100 cars (e.g.) at $100,000, or 200 cars at an average transaction price of $50,000, the lower volume would yield $10,000,000 whereas the higher volume would also yield $10,000,000.  Though the profit isn't any higher, the operational costs are spread between more vehicles and this useless statistic of "$ lost per vehicle" would be halved.

But you're assuming that the cost to product the Model 3 will be 1/2 of what it costs to produce the Model S. That's highly unlikely.

[Noto]

How do you know it's not true? Obviously there are savings to be had that come with scale but the Model 3 is not going to be instantly profitable. And that's why they're starting production of the Model X first.

It doesn't have to be instantly profitable - it just has to be used to share the production costs of the supercharging stations/gigafactory, etc.

If Tesla sells 100 cars (e.g.) at $100,000, or 200 cars at an average transaction price of $50,000, the lower volume would yield $10,000,000 whereas the higher volume would also yield $10,000,000.  Though the profit isn't any higher, the operational costs are spread between more vehicles and this useless statistic of "$ lost per vehicle" would be halved.

But you're assuming that the cost to product the Model 3 will be 1/2 of what it costs to produce the Model S. That's highly unlikely.

I didn't say profit.  I said operational costs and the amount of money 'yielded' as gross revenue, not as profit.

[Cord]

Tesla reports its finances in a different way from the Detroit automakers. Using the generally accepted accounting principles, or GAAP, used by GM or Ford, Tesla’s operating losses per vehicle have steadily widened to $14,758 from $3,794 in the second quarter of 2014.

That's gotta hurt the car company fanboy demographic. 

[tpl]

It would be good if Tesla made large profits....why?  Because Mr Musk could then sell off the business and get on with the important thing... private enterprise space.   The history books are far more likely to remember Space-X thn a company that makes a few battery powered cars...no matter how good they are.

[OliverD]

How do you know it's not true? Obviously there are savings to be had that come with scale but the Model 3 is not going to be instantly profitable. And that's why they're starting production of the Model X first.

It doesn't have to be instantly profitable - it just has to be used to share the production costs of the supercharging stations/gigafactory, etc.

If Tesla sells 100 cars (e.g.) at $100,000, or 200 cars at an average transaction price of $50,000, the lower volume would yield $10,000,000 whereas the higher volume would also yield $10,000,000.  Though the profit isn't any higher, the operational costs are spread between more vehicles and this useless statistic of "$ lost per vehicle" would be halved.

But you're assuming that the cost to product the Model 3 will be 1/2 of what it costs to produce the Model S. That's highly unlikely.

I didn't say profit.  I said operational costs and the amount of money 'yielded' as gross revenue, not as profit.

You said:

That's why I was perplexed with the push for the Model X over the Model III...

Tesla has proven that they can sell cars in the higher range of the market. The Model X is a natural next product because it's priced in line with what they're already selling.

To build the Model 3 first over the Model X would be counterintuitive because it's a product with lower margins and requires a greater investment in manufacturing infrastructure. While it's entirely possible (perhaps even probable) that the Model 3 would grow gross revenues faster than the Model X, that would come at a huge cost to Tesla.

By building more expensive models first, Tesla can over time lower their manufacturing costs and greatly increase their revenue before they start building the high volume/low margin Model 3.

[Noto]

Fair enough.

[dkaz]

15 years ago, Toyota lost $25k for every Prius sold, but I think by the end of that 1st gen they were breaking even. Now they're making money on Priuses and licensing.

I agree with rrocket's points about how it's painful when it's their only product. I'm sure this is why their decision to get rid of the old $55k 65 model and going with the new 70(D), 85(D), and P85D at the higher price points starting at $70k were critical to their long term success. It doesn't really hurt them, most of their buyers were going big anyway. Most of the existing Teslas I see were 85s and P85s to begin with.

[rrocket]

Tesla reports its finances in a different way from the Detroit automakers. Using the generally accepted accounting principles, or GAAP, used by GM or Ford, Tesla’s operating losses per vehicle have steadily widened to $14,758 from $3,794 in the second quarter of 2014.

That's gotta hurt the car company fanboy demographic. 

Tesla has been heavily criticized for this.  Beyond this, I've read several articles rightfully questioning how Tesla will ever reduce the relatively static production costs of it's batteries in order to produce the model 3, charge 35k and actually start turning a profit.  Elon can talk about his Giga factory all he wants, but the fundemental costs of the battery will effectively not be much cheaper than the model S battery. Battery production is a highly automated process and the material costs are basically fixed.  Sure he'll save on transport but doesn't he already have an arrangement set up with Panasonic?  If he's losing money on a 100k dollar car, how's he going to produce a 35k dollar car and make money?

More gov't handouts?

[Noto]

I'm not the argumentative type, so I'll say this once and won't follow any further.

Statistics are often misunderstood.  This statistic, in particular, is basically saying that total OPERATING costs exceed the total revenue based on the number of vehicles sold so far.

Insofar as the operating costs will subside (i.e. superchargers will be completed and expansion of them will slow accordingly; the Gigafactory's building cost will be completed; and no doubt the batteries produced in-house will be cheaper than Panasonic's supplied versions), and the volume of cars sold will increase, this specific statistic ($x,xxx lost PER CAR) will, too, diminish.

And again, for the final time, Tesla did NOT lose $4,000 on my bosses's $142,000 P85D.  Nor is $4,000 the 'average' loss per car.  It's specifically a way of saying that the operating costs exceed the revenue, the value of which, when divided by the number of vehicles sold, equals $4,000 per vehicle sold.  This is NOT a static number.

[SaskSpecV]

I thought I read somewhere that most of Tesla's overall "profit" was derived from selling credits via California's "cap and trade" system? (Or whatever California has mandated, such that all companies have to sell some proportion of electric cars, or buy credits from those that do).  Anyone else know something about that?

[johngenx]

I don't think they really care. Google went along for ages with people scratching their heads about how a search engine would ever make money.

Musk is the long game player. Tesla is not just another car maker. He wants to reinvent the entire concept including the supporting infrastructure.

The issue comes when shareholders are not on board. I like Musk. He's nuts, but good nuts.


Sent from my iPhone using Tapatalk

[Woodyism]

Tesla reports its finances in a different way from the Detroit automakers. Using the generally accepted accounting principles, or GAAP, used by GM or Ford, Tesla’s operating losses per vehicle have steadily widened to $14,758 from $3,794 in the second quarter of 2014.

That's gotta hurt the car company fanboy demographic. 

Tesla has been heavily criticized for this.  Beyond this, I've read several articles rightfully questioning how Tesla will ever reduce the relatively static production costs of it's batteries in order to produce the model 3, charge 35k and actually start turning a profit.  Elon can talk about his Giga factory all he wants, but the fundemental costs of the battery will effectively not be much cheaper than the model S battery. Battery production is a highly automated process and the material costs are basically fixed.  Sure he'll save on transport but doesn't he already have an arrangement set up with Panasonic?  If he's losing money on a 100k dollar car, how's he going to produce a 35k dollar car and make money?

I think the Tesla game plan is to sell the batteries to all manufacturers, he will be lord of the battery pack.  This will come to fruition if he can provide enough  quantity and a cost advantage over the others.  Doesn't Kia/Hyundai have their own batteries?

Noto - no Tesla made money on the sale of the car to the boss, just not enough to cover their expenditures.

Incredibly enough the business side of car manufacturing is more important than the actual cars.

Cheers
Woody