Tesla's business plan: Riding on fumes

[NigelM]

CNN Money Fortune Report

IMO, the article is much more balanced than the headline suggests:

Due to go on sale in mid-2012, the seven passenger Model S is designed to do nothing less than revolutionize the auto industry.

Tesla will have to stand traditional auto industry economics on its head.

"The auto industry might change more in the next 10 years than the last 100," wrote veteran analyst Steve Milunovich of Bank of America Merrill Lynch in a report published August 8. "Electric vehicles (EV) represent a new category that Tesla could lead given that new entrants tend to win when disruptive technologies emerge. In our view, CEO Elon Musk may be similar to Steve Jobs in being a technology visionary also able to manage and create shareholder value."

[AnOutsider]

Pretty cool read (and video), thanks

[TEG]

Yes, it seems like a generally positive article. I wonder why they picked the odd title.
I imagine a different person (e.g.: editor) named the story than the one that wrote it?

[tdelta1000]

The title would suggests that Tesla Motors is in trouble but the article has a more reasonable stance. I still hold the belief that the Models S will be a success.

[Larry Chanin]

Hi,

Interesting article. I find it rather unusual that Tesla would reveal their expected gross margins for the extra battery capacity models.

CEO Elon Musk insists that the company will make money in 2013. One big reason, a spokesperson says, is a pair of upscale S models with extra battery capacity priced at $67,000 and $77,000 that will command gross margins of 25%.

Larry

[ckessel]

Tesla has mentioned their expected gross margins a few times I think in conference calls.

The article seemed reasonably valid, the title not withstanding. My biggest concern is Tesla over extends and goes bankrupt before getting a positive cash flow. I pretty firmly believe there's enough market for them to be profitable at some level. Elon has noted before that each division (Roadster, battery reselling) has been individually profitable, but the Model S R&D and manufacturing prep costs have put them way in the red. The Model S being profitable seems likely: at 15k profit per car * 20k = $300 million/year. But will it be enough to subsidize the big workforce they've got now for ongoing R&D on future cars? I've no idea.

[Lloyd]

I said this last year..... We need a "Available Cash Ticker, and Days to Release countdowns" on the home page of TMC. Much like the miles driven page on the TM site!

[NigelM]

Interesting article. I find it rather unusual that Tesla would reveal their expected gross margins for the extra battery capacity models.

One of the perils of being a public company. Margins are revealed to analysts and often during investor calls so sooner or later that information is going to make it's way into the press. Note that they always refer to "Gross Margins" so the entire story is not there; you just have to deduce the rest.

My biggest concern is Tesla over extends and goes bankrupt before getting a positive cash flow.

Agree completely; the key is getting the Model S out on time.

I pretty firmly believe there's enough market for them to be profitable at some level....But will it be enough to subsidize the big workforce they've got now for ongoing R&D on future cars?

This would be an issue for any company; that's where the ATVM loans come in.

I said this last year..... We need a "Available Cash Ticker, and Days to Release countdowns" on the home page of TMC. Much like the miles driven page on the TM site!

Tesla would probably fall foul of SEC regs if they gave an exact launch date this early. I wouldn't expect them to give anyone a launch date until about 6-8 weeks in advance. With everything I have read, I expect that we will hear the phrase "early summer next year" this coming weekend. My forecast is that Sigs will be delivered from late-April thru mid-June.

[Larry Chanin]

One of the perils of being a public company. Margins are revealed to analysts and often during investor calls so sooner or later that information is going to make it's way into the press. Note that they always refer to "Gross Margins" so the entire story is not there; you just have to deduce the rest.

Hi Nigel,

What's particularly interesting in the following excerpt (below) from the article is that they seem to be confirming something I had wondered about, that the base model perhaps has little or no profit which is paid for by the substantial margins on the extra battery capacity models. In the second quarter 2011 Results - Earnings Call Elon just mentions a 25% target margin for the Model S. Here in this article the Tesla spokeperson seems to be singling out the upscale models with the extra battery capacity.

CEO Elon Musk insists that the company will make money in 2013. One big reason, a spokesperson says, is a pair of upscale S models with extra battery capacity priced at $67,000 and $77,000 that will command gross margins of 25%.

Larry

[AnOutsider]

Hi Nigel,

What's particularly interesting in the following excerpt (below) from the article is that they seem to be confirming something I had wondered about, that the base model perhaps has little or no profit which is paid for by the substantial margins on the extra battery capacity models. In the second quarter 2011 Results - Earnings Call Elon just mentions a 25% target margin for the Model S. Here in this article the Tesla spokeperson seems to be singling out the upscale models with the extra battery capacity.



Larry

Larry,

I wonder if that's an average? Like maybe the base model has something like 5% margin, 240 pack has like 20% and Sig/300 mile has like 30%. Average them out, that's 18% margin. Average just the top two and that's 25% margin