Tesla financial situation with DOE loan

[jhs_7645]

Jkam, congrats! I hope you love the car.

I'm cross-posting a post of mine from another thread. I know the frustration level can get high with Tesla, but as explained below I really don't think it's the employees' fault (at least the ones who deal with us directly), and think that some of the disagreements in this thread between "fans" and others aren't wide, but rather we can all agree that individual Tesla employees are by and large fantastic, but Tesla has collectively made some decisions that have led to the frustrations we are seeing here.

Not a sig holder, but chiming in anyway (so feel free to ignore my opinion). While I believe Tesla has always had good intentions there has obviously *always* been a balancing act between their ability to provide their customers with everything the customers need/want and Tesla's financial ability to do so. It seems to me that Tesla is walking the finest of lines financially, and likely priced the sig so that they could actually fund not just the car, but the ramp up in delivery specialists, production, etc... while using up almost all of their capital. I just don't see how they could have 'ignored the bean counters' without sacrificing *something*... where would you propose they cut spending? Have you seen examples of spending that seems out of line with a company trying to plan for the future and manage the present? I sure haven't. What I see is a company doing amazing things with so very little.

[Arnold Panz]

Not a sig holder, but chiming in anyway (so feel free to ignore my opinion). While I believe Tesla has always had good intentions there has obviously *always* been a balancing act between their ability to provide their customers with everything the customers need/want and Tesla's financial ability to do so. It seems to me that Tesla is walking the finest of lines financially, and likely priced the sig so that they could actually fund not just the car, but the ramp up in delivery specialists, production, etc... while using up almost all of their capital. I just don't see how they could have 'ignored the bean counters' without sacrificing *something*... where would you propose they cut spending? Have you seen examples of spending that seems out of line with a company trying to plan for the future and manage the present? I sure haven't. What I see is a company doing amazing things with so very little.

This was well covered back when they announced the pricing, but as others have pointed out, Sigs are fully loaded cars. Assuming Tesla is making money on each option, they already should be making a tidy profit on each Sig sold without the Sig premium. Had there been no markup and no discount, I think the backlash would have been significantly less than what they've gotten.

As for needing cash, they've got the government loan, not to mention opening tons of stores all over the place. These stores are generally stated to be opening to encourage people to use/like/try EVs, which is the same issue I addressed. I don't know the exact cost of opening a store, but I bet if they delayed one or two store openings, which only intend to drive demand which Tesla doesn't need in the short run, it would easily have saved the few million extra they're making off of the Sig premium. And, it wouldn't have required to resources to find locations, source the stores, get them built, and staff and open them. Sorry, but claiming poverty for Tesla so they needed to charge Sigs extra doesn't hold water.

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I've never given much weight to this being the manufacturer's problem. Yes, it's part of a customer's evaluation of value and thus factors into which configuration they choose to purchase.

Take that approach to its logical extreme "wow, the Sig tax is like $50k (or whatever) because I'm comparing with the bare 40 kWh." Clearly that's an absurd statement. When evaluating a 'Sig tax', you need to evaluate it against equivalently configured non-Sig not some hypothetical Sig with stuff removed.

I don't think this is the argument, but things like 19" wheels vs. 21" wheels, twin chargers and one or two other options that were standard on the Sigs would bring the cost differential up pretty quickly to the $7k to $10k range for an otherwise comparable car.

[Norbert]

As for needing cash, they've got the government loan, not to mention opening tons of stores all over the place. These stores are generally stated to be opening to encourage people to use/like/try EVs, which is the same issue I addressed. I don't know the exact cost of opening a store, but I bet if they delayed one or two store openings, which only intend to drive demand which Tesla doesn't need in the short run, it would easily have saved the few million extra they're making off of the Sig premium. And, it wouldn't have required to resources to find locations, source the stores, get them built, and staff and open them. Sorry, but claiming poverty for Tesla so they needed to charge Sigs extra doesn't hold water.

It appears you are missing a few facts here. If the government loan had been sufficient to address their financial situation, then they would not have needed the recent capital raise. Which, by the way, diluted my investment in TSLA, so it is *not* like the sig holders would be the only ones paying a "tax". And I didn't even have a choice!

I'm guessing you might not have seen the video of Elon's talk in which he said that it was in question that they make it through the next few months (at that time).

You might have missed the (probably still) not-so-small number of industry experts having more than doubts that Tesla will be able to survive as a independent company, or that they would be able to reach a production rate of thousands of cars per year.

One of the strongest factors for experts having doubt about Tesla's ability to survive is that of continued demand following the initial reservation list. That's why the stores are important.

You must be extremely ignorant of Tesla's situation to write that such arguments wouldn't "hold water".

[ckessel]

Elon has said repeatedly Tesla would have survived without the government loan.

[Norbert]

Elon has said repeatedly Tesla would have survived without the government loan.

The government loan was long ago and is not related to the situation in 2012 (except that they need to start paying it back).

EDIT: Elon's talk, which I am referring to above, is from mid-2012 or a bit later.

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And, by the way, did anyone here notice that Tesla told their delivery specialists that they should be prepared to work 7-day weeks throughout Q1 2013?

Why would they do that, may I ask?

[ckessel]

The situation is about finances, yes? 2012 doesn't live in isolation. How do you discuss Tesla's financial management that led to today's situation without considering how they have handled 465 million Elon has said wasn't even strictly required?

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Why would they do that, may I ask?

Because they failed to plan their staffing timelines.

[Krugerrand]

Elon has said repeatedly Tesla would have survived without the government loan.

He did say that, but he also said something else too...that if they hadn't gotten that loan, they wouldn't be nearly as far ahead. In other words, they wouldn't own the NUMMI plant now greatly renovated, partially filled with state-of-the-art robots and press lines, they wouldn't be pumping out their current rate of Model S, they wouldn't be opening stores and service centres at their current rate, they wouldn't have announced the Supercharger stations, most US Sig holders would still be waiting for their cars instead of a handful, and so on.

He also said they didn't 'need' the second offering money, but that that money was for 'insurance' in case something unexpected came along, and so that they could continue to forge ahead at full speed and get back to R&D for the X and subsequent models a.s.a.p.

There's more than one way to survive. Personally, I'm all for the head down, full speed ahead approach for this 'bigger than us situation', even if a few people get upset along the way.

[ckessel]

He also said they didn't 'need' the second offering money, but that that money was for 'insurance' in case something unexpected came along, and so that they could continue to forge ahead at full speed and get back to R&D for the X and subsequent models a.s.a.p.

Yep, that's sort of my point. Tesla spent a bunch of money in various ways so the argument that they didn't hire sufficient support staff (e.g. Delivery Specialists) or had to do the Sig surcharge to survive doesn't hold much water. They chose to prioritize their spending in this way. It wasn't a matter of desperation survival since they actually had enough money to purposefully pick what they spent on.

And maybe it's the right thing. I'm not fond of some of those choices such as the Sig surcharge, but I don't have to be and I'm not particularly bothered by them. I'll argue my thoughts on their merits, but at the end of the day it's sort of an academic discussion rather than one of passion.

I'm only taking exception that theory that the actions were born of survival "desperation". The history of when they got money and how they spent it over the last few years doesn't support that theory. Unless someone wants to argue they incompetently bungled their way into the current problems, but I don't really see it that way.

[Shorty]

@Norbert

If Tesla rasied money at market value then your investment isn't diluted and the value of your stock isn't impacted.

Companies raise money all of the time and there is no better time to get dough then when the market is frothy and your stock price is high. If they didn't plan to use the money then that is one thing but using it for growth or to pay back higher interest debt is very prudent.

[Norbert]

The situation is about finances, yes? 2012 doesn't live in isolation. How do you discuss Tesla's financial management that led to today's situation without considering how they have handled 465 million Elon has said wasn't even strictly required?

Agree with Krugerrand's explanation, and would like to highlight that the statement was that the loan wasn't necessary to survive *at that time*. But only because they received an investment from Daimler a bit earlier. Without either investment (and any other), they would not have.

Because they failed to plan their staffing timelines.

If it were just the timeline, then they could have meanwhile addressed it. At least I don't see why not.