Tesla and Uber Unlikely to Survive...
Discussion
It will be interesting to see if Dyson try to 'out tech' Tesla. One thing coming from all the 3 reviews is the OS is amazing and blows every other in car entertainment system away (inc the sound system). But then Tesla have been working on it for almost 10 years.
Dyson might as well just make the screen Android and let people run whatever app they want. Can't see them catching Tesla with a custom OS.
Performance? .1s quicker isn't really going to make much noise.
Charging network? Holy s
t that would be difficult.
Range? It's reached the point where it's not a big deal anymore. 3 long range really goes 300+ miles.
Tesla have such a lead right now. 10 years.
Dyson are going to have to do something incredible to be noticed.
Dyson might as well just make the screen Android and let people run whatever app they want. Can't see them catching Tesla with a custom OS.
Performance? .1s quicker isn't really going to make much noise.
Charging network? Holy s
t that would be difficult.Range? It's reached the point where it's not a big deal anymore. 3 long range really goes 300+ miles.
Tesla have such a lead right now. 10 years.
Dyson are going to have to do something incredible to be noticed.
jjwilde said:
Dyson are going to have to do something incredible to be noticed.
Dyson will be the only EV with digital motors.As Dyson have trademarked the term 'Digital Motor' for automotive use
Yes really https://www.autocar.co.uk/car-news/new-cars/dyson-...Otispunkmeyer said:
I think Hyundai/Kia would like a word. Granted, they are not as fast or powerful, but they’re a match on the Wh/mi stakes.
Consumers only worry about mpg if they are poor or have over stretched themselves with their purchase or in the case of EVs have bought something that doesn’t quite fit their user needs. In the real world there is an enormous range of efficiencies among vehicles on offer. It isn’t going to mystically be the case that this suddenly changes because it’s an EV. DonkeyApple said:
Otispunkmeyer said:
I think Hyundai/Kia would like a word. Granted, they are not as fast or powerful, but they’re a match on the Wh/mi stakes.
Consumers only worry about mpg if they are poor or have over stretched themselves with their purchase or in the case of EVs have bought something that doesn’t quite fit their user needs. In the real world there is an enormous range of efficiencies among vehicles on offer. It isn’t going to mystically be the case that this suddenly changes because it’s an EV. For "mpg" read cost vs range. Tesla's lead over some is in the "how many miles can I go for how much capital" rather than "how many miles can I go for how large a tank fill?" Efficiency kicks in *when* the decision to purchase an EV has been made.
And Tesla's big advantage? *Everyone* has heard of them, they are the de facto default EV vendor, their tech is credible and usable every day, there are very few horror stories doing the rounds, and so on. Everyone else is playing catch-up in terms of positioning in the EV arena. Since a great many buyers will see this as a new class of machine, not "just" a car with electric motor and battery, that share of mindshare is a huge competitive advantage.
skwdenyer said:
You may underestimate the groundswell of opinion on environmental issues, certainly in the Western world. Pester power is huge right now, for instance. Children are openly challenging their parents to do the right thing for the sake of the planet.
For "mpg" read cost vs range. Tesla's lead over some is in the "how many miles can I go for how much capital" rather than "how many miles can I go for how large a tank fill?" Efficiency kicks in *when* the decision to purchase an EV has been made.
And Tesla's big advantage? *Everyone* has heard of them, they are the de facto default EV vendor, their tech is credible and usable every day, there are very few horror stories doing the rounds, and so on. Everyone else is playing catch-up in terms of positioning in the EV arena. Since a great many buyers will see this as a new class of machine, not "just" a car with electric motor and battery, that share of mindshare is a huge competitive advantage.
I think you are living in a bubble and overestimating...For "mpg" read cost vs range. Tesla's lead over some is in the "how many miles can I go for how much capital" rather than "how many miles can I go for how large a tank fill?" Efficiency kicks in *when* the decision to purchase an EV has been made.
And Tesla's big advantage? *Everyone* has heard of them, they are the de facto default EV vendor, their tech is credible and usable every day, there are very few horror stories doing the rounds, and so on. Everyone else is playing catch-up in terms of positioning in the EV arena. Since a great many buyers will see this as a new class of machine, not "just" a car with electric motor and battery, that share of mindshare is a huge competitive advantage.
Here's a recent example for you on the environment front: Pret a manger removed all their plastic cutlery from out in the shop, to behind the tills ie. You had to ask for it.
Lasted 2 months before they were back out.
Why? As customers want convenience over saving the planet. Office workers didn't want to bring their own cutlery to keep in their desk draw and wash it themselves.
Same convenience as filling a car quickly at a petrol station
On the range front: cost and other factors matter. Just one of many considerations in a car purchase.
Everyone has heard of them? No they haven't. For a start they don't advertise.
New class of machine? Only for the boys club who are getting hard over ev 0-60 times
BMW with i8 and i3 tried the whole 'new class of machine' as did Tesla with their gull wing doors and what not. Consumers kept buying ICE cars.
To class as a 'new class of machine'- the b
h needs to fly or hover!!Edited by hyphen on Saturday 17th August 17:00
DonkeyApple said:
Could be that Norway is a remarkably small country and not one to build a global automotive business around.
Tesla has to sell EVs as thatbis their sole reason to exist. They sell them even though they lose money in doing so. The mainstream car manufacturers simply have no need to sell products at a loss and more importantly they aren’t allowed to by their shareholders, whereas Tesla shareholders have invested specifically to lose money in order to win market share.
That’s the enormous difference between investment capital wanting dividend income today versus investment capital hoping for enormous capital returns tomorrow. Two completely different worlds that create two completely different types of business. It is almost a coincidence that the two types of business are aiming long term to sell the same product such is the total difference of the short to medium term paths.
A start up looking to just sell one product has no choice but to build its model around the risks of Government taxation policy but conversely an incumbent has no need or interest or mandate to bring on that risk.
So what you have is Tesla fronting all these risks in the here and now and hoping for the massive capital reward for navigating through them but the incumbents have absolutely no need or desire to bafflingly change to a start up, capital burn model nor any permission to do so but instead are delivering in the correct way for that type of business. For most firms the whole EV arena is mostly just about doing enough to benefit from the brand marketing upside and doing enough to keep on top of the learning curve but for them there is no commercially profitable market for EVs (nor is there for Tesla at this moment in time) and so there is absolutely no reason to be churning them out.
I think that a big issue from the Tesla side is that there is a lack of objectivity due to the love of the product. It is this that prevents some from comprehending the simple reality of two absolutely opposing business models both aiming for the same end achievement but having to go about it in completely different ways. At the same time this passion also seemingly blocks the rational understanding that no one actually needs an EV or that they are not the perfect answer but just an answer to a certain group of car users and that this is why ICE will still be a huge seller in twenty years time unless something significantly better and cheaper than LI batteries comes to market.
It may help if people compare the rise of the challenger bank in the traditional banking market place.
On the surface these challenger banks look like something amazing that will kill off the stagnant old incumbents and why aren’t these incumbents fighting back?
The reality is that the challenger banks are not doing anything new, they are simply taking the loss making element of global banking (basic retail cash deposits) and wrapping it up in a pseudo slick interface (easy to do when all you offer is the most basic element of the global banking industry) and cutting a few corners, or at least running zero buffer zone in the regulatory and legal framework. All of which is completely loss making and needs to be financed by venture capital.
And what are they hoping to achieve? Well the single objective is to take enough market share before the venture capital runs out so that they can then start bogging themselves down with all the cumbersome but actually profitable side of retail banking.
They are burning risk capital in order to become big enough to become an identical operator to the cumbersome incumbents.
And once you realise that is how it all works you can then suddenly appreciate why there is nothing in it for the incumbents for doing likewise as they are already there! There is nothing to win at the end of losing all that money, no reward. All they can do is slightly tinker around the edges of their existing offering to keep apace with the evolving client side.
And that is the key to understanding Tesla v Incumbents.
The Tesla killer won’t be a product. That’s your overly simplistic penny share gambler’s perspective that is caused by newco being based around one product, the assumption that the risk comes from someone else appearing with the same product via the same business model. It’s not about product. It’s in reality about process.
All firms are targeting holding a key level market share at X date in the future and are travelling to that point via differing paths. The product is almost irrelevant as they are all making the same product. It’s the path that is critical. It’s who has the most robust and most potentially profitable path and often, the lowest risk.
VW has forced themselves into the game well in advance of what they ever wanted but the threat to VW’s venture isn’t Tesla but China. China is the biggest entity in EVs by magnitudes and it has been on its path for longer than anyone else, has total State backing including global material control and already has the dominant market share.
VW is standing in the massive shadow of the Chinese EV machine and looking up. It’s not got any time, nor is there any potential reward, to look down at a low volume, premium EV manufacturer that is only able to sell product where governments incentivise sales and those products are currently loss making.
From VW’s and the other incumbents’ perspectives their long term and potentially life threatening problem is China, China is the absolutely enormous storm front that is heading towards them. Tesla is just the puddle next to them and they’ve already got wellies on.
Tesla sell some premium products to rich folk in rich countries and can only do that because those countries give away taxpayer funds. The incumbents sell millions of cheaper products to the middle and poor demographics and their premium products are mostly to assist in marketing and selling those normal products to the normal market. And the big threat to their future and business is that the Chinese state controls the global market for the key raw materials, the Chinese state has been bankrolling the new EV manufacturers and the Chinese state has created the largest consumer market for EVs via heavy tax subsidies. And why has China done this? Because they want to export more than just plastic tat at Christmas to the West. They want to totally dominate the global
Car market and have specifically opted to control and dominate the global EV market.
The existence of China and its now twenty year old strategy for global dominance of the automotive industry is why Tesla in the grand scheme of things is an irrelevance to the Western incumbents. It’s a wasp flying a bit too close to your ballbag but while an enormous tiger is about to pounce on you.
We don't always agree, but that's a great post and some excellent thinking.Tesla has to sell EVs as thatbis their sole reason to exist. They sell them even though they lose money in doing so. The mainstream car manufacturers simply have no need to sell products at a loss and more importantly they aren’t allowed to by their shareholders, whereas Tesla shareholders have invested specifically to lose money in order to win market share.
That’s the enormous difference between investment capital wanting dividend income today versus investment capital hoping for enormous capital returns tomorrow. Two completely different worlds that create two completely different types of business. It is almost a coincidence that the two types of business are aiming long term to sell the same product such is the total difference of the short to medium term paths.
A start up looking to just sell one product has no choice but to build its model around the risks of Government taxation policy but conversely an incumbent has no need or interest or mandate to bring on that risk.
So what you have is Tesla fronting all these risks in the here and now and hoping for the massive capital reward for navigating through them but the incumbents have absolutely no need or desire to bafflingly change to a start up, capital burn model nor any permission to do so but instead are delivering in the correct way for that type of business. For most firms the whole EV arena is mostly just about doing enough to benefit from the brand marketing upside and doing enough to keep on top of the learning curve but for them there is no commercially profitable market for EVs (nor is there for Tesla at this moment in time) and so there is absolutely no reason to be churning them out.
I think that a big issue from the Tesla side is that there is a lack of objectivity due to the love of the product. It is this that prevents some from comprehending the simple reality of two absolutely opposing business models both aiming for the same end achievement but having to go about it in completely different ways. At the same time this passion also seemingly blocks the rational understanding that no one actually needs an EV or that they are not the perfect answer but just an answer to a certain group of car users and that this is why ICE will still be a huge seller in twenty years time unless something significantly better and cheaper than LI batteries comes to market.
It may help if people compare the rise of the challenger bank in the traditional banking market place.
On the surface these challenger banks look like something amazing that will kill off the stagnant old incumbents and why aren’t these incumbents fighting back?
The reality is that the challenger banks are not doing anything new, they are simply taking the loss making element of global banking (basic retail cash deposits) and wrapping it up in a pseudo slick interface (easy to do when all you offer is the most basic element of the global banking industry) and cutting a few corners, or at least running zero buffer zone in the regulatory and legal framework. All of which is completely loss making and needs to be financed by venture capital.
And what are they hoping to achieve? Well the single objective is to take enough market share before the venture capital runs out so that they can then start bogging themselves down with all the cumbersome but actually profitable side of retail banking.
They are burning risk capital in order to become big enough to become an identical operator to the cumbersome incumbents.
And once you realise that is how it all works you can then suddenly appreciate why there is nothing in it for the incumbents for doing likewise as they are already there! There is nothing to win at the end of losing all that money, no reward. All they can do is slightly tinker around the edges of their existing offering to keep apace with the evolving client side.
And that is the key to understanding Tesla v Incumbents.
The Tesla killer won’t be a product. That’s your overly simplistic penny share gambler’s perspective that is caused by newco being based around one product, the assumption that the risk comes from someone else appearing with the same product via the same business model. It’s not about product. It’s in reality about process.
All firms are targeting holding a key level market share at X date in the future and are travelling to that point via differing paths. The product is almost irrelevant as they are all making the same product. It’s the path that is critical. It’s who has the most robust and most potentially profitable path and often, the lowest risk.
VW has forced themselves into the game well in advance of what they ever wanted but the threat to VW’s venture isn’t Tesla but China. China is the biggest entity in EVs by magnitudes and it has been on its path for longer than anyone else, has total State backing including global material control and already has the dominant market share.
VW is standing in the massive shadow of the Chinese EV machine and looking up. It’s not got any time, nor is there any potential reward, to look down at a low volume, premium EV manufacturer that is only able to sell product where governments incentivise sales and those products are currently loss making.
From VW’s and the other incumbents’ perspectives their long term and potentially life threatening problem is China, China is the absolutely enormous storm front that is heading towards them. Tesla is just the puddle next to them and they’ve already got wellies on.
Tesla sell some premium products to rich folk in rich countries and can only do that because those countries give away taxpayer funds. The incumbents sell millions of cheaper products to the middle and poor demographics and their premium products are mostly to assist in marketing and selling those normal products to the normal market. And the big threat to their future and business is that the Chinese state controls the global market for the key raw materials, the Chinese state has been bankrolling the new EV manufacturers and the Chinese state has created the largest consumer market for EVs via heavy tax subsidies. And why has China done this? Because they want to export more than just plastic tat at Christmas to the West. They want to totally dominate the global
Car market and have specifically opted to control and dominate the global EV market.
The existence of China and its now twenty year old strategy for global dominance of the automotive industry is why Tesla in the grand scheme of things is an irrelevance to the Western incumbents. It’s a wasp flying a bit too close to your ballbag but while an enormous tiger is about to pounce on you.
Tesla have had 16 years to work on this. The China factory is interesting: so many Western manufacturers have effectively been forced to take on a local JV partner. Tesla has managed to avoid this dilution. That plant is targeting 500k sales pa alone. If achieved, that's a 139% bump in production in one fell swoop. Production there is apparently aimed at China + surroundings, freeing up US production for RoW.
VW (as they've been mentioned) have some impressive plants. But AFAIK their Chinese operations are all JVs - they need to sell twice as well as Tesla just to overcome that internal handicap.
Even with all their problems and inefficiencies, Tesla's gross margin (automotive) last Q was 23%. Compare that to VW, say, who've averaged 9-20% over the last 2 decades. Ah, but VW are profitable, you say. Yes, they are. But let's not forget that Tesla and VW don't report under the same regime.
VW reports under IFRS, under which R&D (if leading to a sellable product) can be capitalised. Tesla, on the other hand, reports under US GAAP, under which R&D (regardless of purpose) must be expensed in the current year.
VW capitalised 37% of all R&D in 2018 (see https://www.volkswagenag.com/presence/investorrela... page 40). Given Tesla's product mix plans and profile, it is likely that closer to 50% would have been very well-justified under IFRS.
If Tesla had been able to capitalise 50% of all R&D in the last quarter (i.e. $162m), they would have broken even at operating level. The difference between operating profit and operating loss is literally the difference between US GAAP and IFRS (and yes I'm deliberately ignoring any charges for depreciation of previously-capitalised R&D in this - I'm looking at just this period).
After that, the "loss" is "just" interest - not ideal, but ultimately dealable-with by equity investment if needs be.
So Burwood's assessment that they were selling cars at a marginal loss is not really true; it isn't the "overheads" that are killing them, it is a mixture of US GAAP and interest payments. Scaling production will move them firmly into profitability, as it requires little or no expansion in R&D spend. The China factory is likely going to go a long way to fixing the US GAAP issue and presenting a true picture of what is, by equivalent European standards, a surprisingly not-loss-making operation right now.
As regards "challenger" banks, I bank with 2 of them right now (in addition to a couple of the incumbents). Maybe you're right about them doing the unprofitable stuff, but the "gloss" is damned good, and shows up the incumbents for being lazy, arrogant, complacent, and totally not focussed upon customers' needs. Right now I'm much more likely to dump the conventional banks than the challengers.
But will the challengers go bust? Let's look at Starling, say. At 30/11/18 they had £206m of customer deposits, of which they'd only lent to customers £8.7m. They'd lent £187m to other banks. So they're basically not earning any interest from customers, and presumably relatively little from other banks (looks like about 1% overall). As they move into the customer lending business, they can expect to increase the significantly - lending £187m to customer at 10% would push them pretty close to profitability. If they continue growing at their recent rate, capital adequacy shouldn't be an issue for that move.
So it looks like their play was the right one. Any of the incumbent banks could have headed this off at the pass (let's not forget that HSBC pre-empted competition in direct banking with First Direct, not to mention Smile etc.) - it is only a bit of "gloss" and a properly-thought-through UI. But they didn't, and I suspect at least one will succumb to the competition.
Anyhow, back to Tesla. You're right that investors have been (and continue to) in effect fund losses. But Tesla is basically at break-even point by any sensible European measure (IFRS and stripping out interest). If there's any logic, Tesla ought to be able to re-finance all that debt much more cheaply and, if not, an equity raise would remain an option. Coupled with the China expansion, I think that's a tremendous achievement and one that significantly threatens many incumbent manufacturers (even those selling right now 10x or even 20x Tesla's volume).
While the Chinese gov have finally relaxed the position where companies had to be in 50/50 JVs (companies like Jaguar had little to no choice but to have a JV with Cherry in China) I think its worth recognising that you may prefer the Chinese gov to be in in your corner when doing business there, especially if some of the funding would be coming from them (or Chonese investors) and you're a cash strapped company.
The government is ruthless at doing business and the rule book they play by is not the same as our Western one, And even ours, especially the one in the US, can result in some very one sided rulings, Be careful what you wish for, especially when you're the type of company boss who likes to play by your own rule book.
The government is ruthless at doing business and the rule book they play by is not the same as our Western one, And even ours, especially the one in the US, can result in some very one sided rulings, Be careful what you wish for, especially when you're the type of company boss who likes to play by your own rule book.
skwdenyer said:
You may underestimate the groundswell of opinion on environmental issues, certainly in the Western world. Pester power is huge right now, for instance. Children are openly challenging their parents to do the right thing for the sake of the planet.
For "mpg" read cost vs range. Tesla's lead over some is in the "how many miles can I go for how much capital" rather than "how many miles can I go for how large a tank fill?" Efficiency kicks in *when* the decision to purchase an EV has been made.
And Tesla's big advantage? *Everyone* has heard of them, they are the de facto default EV vendor, their tech is credible and usable every day, there are very few horror stories doing the rounds, and so on. Everyone else is playing catch-up in terms of positioning in the EV arena. Since a great many buyers will see this as a new class of machine, not "just" a car with electric motor and battery, that share of mindshare is a huge competitive advantage.
Everyone is talking about being environmentally friendly while sipping on their shop bought coffee in disposable cups before heading off to buy importorted goods they have no real need of. It’s just rampant consumerism rebranded to assist rampant consumers to continue consuming rampantly. All lubricated by money they haven’t yet earned and many never will. For "mpg" read cost vs range. Tesla's lead over some is in the "how many miles can I go for how much capital" rather than "how many miles can I go for how large a tank fill?" Efficiency kicks in *when* the decision to purchase an EV has been made.
And Tesla's big advantage? *Everyone* has heard of them, they are the de facto default EV vendor, their tech is credible and usable every day, there are very few horror stories doing the rounds, and so on. Everyone else is playing catch-up in terms of positioning in the EV arena. Since a great many buyers will see this as a new class of machine, not "just" a car with electric motor and battery, that share of mindshare is a huge competitive advantage.
The future risk to EVs is that bubble bursting if money supply contracts and the dawning reality that none of it has been or ever was remotely environmental.
It’s at that point you might actually see true environmentalism as consumers are forced to reduced their consumption and the corporates have to rebrand what environmentalism is to fit the new economics.
And there is even the risk to Tesla that when the veile slips they could be seen as poster boys for this cruel description of the masses who thought they were saving the planet by buying ever increasing quantities of gadgets.
But until then, absolutely, Tesla is the brand for EVs just like Range Rover is the brand for SUVs but that hasn’t stopped other firms from joining the party late and making more money and selling more product.
Granted there is a Reporting Standard difference however VW net R&D expense(PNL) which includes Amortisation of capitalised brought forward costs is about 6.5B. They capitalised 2.3 and wrote off 1.8(included in the 6.5). The point is, given their colossal size we are talking a big impact over reporting periods because the PNL charge approximates their annual R&D spend.
I calculate their Gross Profit at around 20%.
A better indicator of health may well be cashflow.
I calculate their Gross Profit at around 20%.
A better indicator of health may well be cashflow.
Burwood said:
Granted there is a Reporting Standard difference however VW net R&D expense(PNL) which includes Amortisation of capitalised brought forward costs is about 6.5B. They capitalised 2.3 and wrote off 1.8(included in the 6.5). The point is, given their colossal size we are talking a big impact over reporting periods because the PNL charge approximates their annual R&D spend.
I calculate their Gross Profit at around 20%.
A better indicator of health may well be cashflow.
I calculated Tesla GP by combining Automotive and Automotive Leasing, but ignoring everything else. Just trying to get a handle on auto.I calculate their Gross Profit at around 20%.
A better indicator of health may well be cashflow.
I specifically mentioned that I'd ignored depreciation (amortisation) of previous R&D spend. I'd have to go back and re-cast many years' results in order to approximate that. But given how fast Tesla has been growing (as opposed to VW), I'd expect the depreciation charge to be much lower compared to VW's, say.
Of course this all very hand-wavy. But from where I sit, I just don't see signals that Tesla can't grow volume from here without making money doing it.
skwdenyer said:
We don't always agree, but that's a great post and some excellent thinking.
Tesla have had 16 years to work on this. The China factory is interesting: so many Western manufacturers have effectively been forced to take on a local JV partner. Tesla has managed to avoid this dilution. That plant is targeting 500k sales pa alone. If achieved, that's a 139% bump in production in one fell swoop. Production there is apparently aimed at China + surroundings, freeing up US production for RoW.
VW (as they've been mentioned) have some impressive plants. But AFAIK their Chinese operations are all JVs - they need to sell twice as well as Tesla just to overcome that internal handicap.
Even with all their problems and inefficiencies, Tesla's gross margin (automotive) last Q was 23%. Compare that to VW, say, who've averaged 9-20% over the last 2 decades. Ah, but VW are profitable, you say. Yes, they are. But let's not forget that Tesla and VW don't report under the same regime.
VW reports under IFRS, under which R&D (if leading to a sellable product) can be capitalised. Tesla, on the other hand, reports under US GAAP, under which R&D (regardless of purpose) must be expensed in the current year.
VW capitalised 37% of all R&D in 2018 (see https://www.volkswagenag.com/presence/investorrela... page 40). Given Tesla's product mix plans and profile, it is likely that closer to 50% would have been very well-justified under IFRS.
If Tesla had been able to capitalise 50% of all R&D in the last quarter (i.e. $162m), they would have broken even at operating level. The difference between operating profit and operating loss is literally the difference between US GAAP and IFRS (and yes I'm deliberately ignoring any charges for depreciation of previously-capitalised R&D in this - I'm looking at just this period).
After that, the "loss" is "just" interest - not ideal, but ultimately dealable-with by equity investment if needs be.
So Burwood's assessment that they were selling cars at a marginal loss is not really true; it isn't the "overheads" that are killing them, it is a mixture of US GAAP and interest payments. Scaling production will move them firmly into profitability, as it requires little or no expansion in R&D spend. The China factory is likely going to go a long way to fixing the US GAAP issue and presenting a true picture of what is, by equivalent European standards, a surprisingly not-loss-making operation right now.
As regards "challenger" banks, I bank with 2 of them right now (in addition to a couple of the incumbents). Maybe you're right about them doing the unprofitable stuff, but the "gloss" is damned good, and shows up the incumbents for being lazy, arrogant, complacent, and totally not focussed upon customers' needs. Right now I'm much more likely to dump the conventional banks than the challengers.
But will the challengers go bust? Let's look at Starling, say. At 30/11/18 they had £206m of customer deposits, of which they'd only lent to customers £8.7m. They'd lent £187m to other banks. So they're basically not earning any interest from customers, and presumably relatively little from other banks (looks like about 1% overall). As they move into the customer lending business, they can expect to increase the significantly - lending £187m to customer at 10% would push them pretty close to profitability. If they continue growing at their recent rate, capital adequacy shouldn't be an issue for that move.
So it looks like their play was the right one. Any of the incumbent banks could have headed this off at the pass (let's not forget that HSBC pre-empted competition in direct banking with First Direct, not to mention Smile etc.) - it is only a bit of "gloss" and a properly-thought-through UI. But they didn't, and I suspect at least one will succumb to the competition.
Anyhow, back to Tesla. You're right that investors have been (and continue to) in effect fund losses. But Tesla is basically at break-even point by any sensible European measure (IFRS and stripping out interest). If there's any logic, Tesla ought to be able to re-finance all that debt much more cheaply and, if not, an equity raise would remain an option. Coupled with the China expansion, I think that's a tremendous achievement and one that significantly threatens many incumbent manufacturers (even those selling right now 10x or even 20x Tesla's volume).
Yup. But don’t forget that VW funnel money via VAG Bank in Lux. They get to ‘lose’ a lot of cash that way. One of the luxuries of owning an extremely large bank and being able to give fake discounts on product sales in one jurisdiction while charging that ‘discount’ back via an offshore finance product. Tesla have had 16 years to work on this. The China factory is interesting: so many Western manufacturers have effectively been forced to take on a local JV partner. Tesla has managed to avoid this dilution. That plant is targeting 500k sales pa alone. If achieved, that's a 139% bump in production in one fell swoop. Production there is apparently aimed at China + surroundings, freeing up US production for RoW.
VW (as they've been mentioned) have some impressive plants. But AFAIK their Chinese operations are all JVs - they need to sell twice as well as Tesla just to overcome that internal handicap.
Even with all their problems and inefficiencies, Tesla's gross margin (automotive) last Q was 23%. Compare that to VW, say, who've averaged 9-20% over the last 2 decades. Ah, but VW are profitable, you say. Yes, they are. But let's not forget that Tesla and VW don't report under the same regime.
VW reports under IFRS, under which R&D (if leading to a sellable product) can be capitalised. Tesla, on the other hand, reports under US GAAP, under which R&D (regardless of purpose) must be expensed in the current year.
VW capitalised 37% of all R&D in 2018 (see https://www.volkswagenag.com/presence/investorrela... page 40). Given Tesla's product mix plans and profile, it is likely that closer to 50% would have been very well-justified under IFRS.
If Tesla had been able to capitalise 50% of all R&D in the last quarter (i.e. $162m), they would have broken even at operating level. The difference between operating profit and operating loss is literally the difference between US GAAP and IFRS (and yes I'm deliberately ignoring any charges for depreciation of previously-capitalised R&D in this - I'm looking at just this period).
After that, the "loss" is "just" interest - not ideal, but ultimately dealable-with by equity investment if needs be.
So Burwood's assessment that they were selling cars at a marginal loss is not really true; it isn't the "overheads" that are killing them, it is a mixture of US GAAP and interest payments. Scaling production will move them firmly into profitability, as it requires little or no expansion in R&D spend. The China factory is likely going to go a long way to fixing the US GAAP issue and presenting a true picture of what is, by equivalent European standards, a surprisingly not-loss-making operation right now.
As regards "challenger" banks, I bank with 2 of them right now (in addition to a couple of the incumbents). Maybe you're right about them doing the unprofitable stuff, but the "gloss" is damned good, and shows up the incumbents for being lazy, arrogant, complacent, and totally not focussed upon customers' needs. Right now I'm much more likely to dump the conventional banks than the challengers.
But will the challengers go bust? Let's look at Starling, say. At 30/11/18 they had £206m of customer deposits, of which they'd only lent to customers £8.7m. They'd lent £187m to other banks. So they're basically not earning any interest from customers, and presumably relatively little from other banks (looks like about 1% overall). As they move into the customer lending business, they can expect to increase the significantly - lending £187m to customer at 10% would push them pretty close to profitability. If they continue growing at their recent rate, capital adequacy shouldn't be an issue for that move.
So it looks like their play was the right one. Any of the incumbent banks could have headed this off at the pass (let's not forget that HSBC pre-empted competition in direct banking with First Direct, not to mention Smile etc.) - it is only a bit of "gloss" and a properly-thought-through UI. But they didn't, and I suspect at least one will succumb to the competition.
Anyhow, back to Tesla. You're right that investors have been (and continue to) in effect fund losses. But Tesla is basically at break-even point by any sensible European measure (IFRS and stripping out interest). If there's any logic, Tesla ought to be able to re-finance all that debt much more cheaply and, if not, an equity raise would remain an option. Coupled with the China expansion, I think that's a tremendous achievement and one that significantly threatens many incumbent manufacturers (even those selling right now 10x or even 20x Tesla's volume).
It’s a bit like importing your shop stock via an offshore entity that then inflates the price which your UK business pays for that stock. Inflated to the point that you end up trading at a loss in the UK every year but make an absolute fortune at your Lux entity.
I've never said they can't make money, I said to do so requires a material increase in volume and without labouring the point, my position is relating their performance to their lunar share price. I am not confident the demand is there to grow at 30% per annum. We will see when China opens for business which is very soon and I have to say what an achievement. The Chinese built that shed in no time 
. I think the rent(finance is expensive though).
My background is in Financial Services/Banking and by nature i'm a cynic when it comes to big Corporates. I've seen plenty of shady st . Musk treats Tesla as his own company and other shareholders with contempt. He is a tt in my view. He should wind his neck in and start behaving like a CEO not a spoilt brat.
I truly wish Tesla all the best but i'd never invest in the stock but I might buy one of their cars one day.
. I think the rent(finance is expensive though).My background is in Financial Services/Banking and by nature i'm a cynic when it comes to big Corporates. I've seen plenty of shady s
t . Musk treats Tesla as his own company and other shareholders with contempt. He is a tt in my view. He should wind his neck in and start behaving like a CEO not a spoilt brat.I truly wish Tesla all the best but i'd never invest in the stock but I might buy one of their cars one day.
hyphen said:
Dyson will be the only EV with digital motor
As Dyson have trademarked the term 'Digital Motor' for automotive use Yes really https://www.autocar.co.uk/car-news/new-cars/dyson-...
Dyson make money, they know how to market, 'Digital Motor' no different from 'Auto Pilot' that crashes your car, and yes the car is aiming for 140-160k USD. As Dyson have trademarked the term 'Digital Motor' for automotive use
Yes really https://www.autocar.co.uk/car-news/new-cars/dyson-...The thing is Tesla have yet to make money, and when you don't have substantial debts to service, you can probably take your time to get it right.
DonkeyApple said:
Yup. But don’t forget that VW funnel money via VAG Bank in Lux. They get to ‘lose’ a lot of cash that way. One of the luxuries of owning an extremely large bank and being able to give fake discounts on product sales in one jurisdiction while charging that ‘discount’ back via an offshore finance product.
I had not realised how big a threat to Telsa VW is or that they have gone 'all in' on EV's with some articles reporting they are in the process of investing 80bill euro in EV development and production with a view of producing 3 mill EVs a year by 2025worst of all my OH has seen the ID Buzz which apparently we must get a deposit on to get on the list ...
Dave Hedgehog said:
DonkeyApple said:
Yup. But don’t forget that VW funnel money via VAG Bank in Lux. They get to ‘lose’ a lot of cash that way. One of the luxuries of owning an extremely large bank and being able to give fake discounts on product sales in one jurisdiction while charging that ‘discount’ back via an offshore finance product.
I had not realised how big a threat to Telsa VW is or that they have gone 'all in' on EV's with some articles reporting they are in the process of investing 80bill euro in EV development and production with a view of producing 3 mill EVs a year by 2025worst of all my OH has seen the ID Buzz which apparently we must get a deposit on to get on the list ...
VW make modest cars for modest budgets around the globe. They are targeting sub 14 hour production times for their products in the cheapest land and labour markets they can work with. Tesla is a premium only manufacturer and won’t ever be competing down at that level.
VW is in the same space as Ford, Toyota, Nissan, PSA etc that the vast bulk of their business is non premium and they have to position that core business to defend against China. Whether Audi or Porsche badges VWs outsell against Tesla or not is of almost no importance. It’s about who can get EVs at the bottom end to work commercially while also developing the ICE business to meet its evolving requirements as that business isn’t going away but just changing.
jjwilde said:
Do you think Tesla will ever make their '1 series' which was in their plan from the start? Perhaps they will licence out their name to a lower cost manufacturer and supply the batteries & motors?
If Musk can make all that automation work, there's no real reason why he can't make a '1 series' in the USA. He was of course too ambitious with his automation plans for the Model 3, but not unreasonably-so - there was a lack of experience and time that contrived to prevent that from working.At that rate of generational iteration at Tesla, I wouldn't bet against significant productivity gains (and unit cost reductions) first in China, then with the Model Y, and so on.
Tesla fall out with a significant customer...
German car rental firm ordered 100 Model 3's, but after 15 got delivered, they were sick and tired of quality and poor customer service issues. Wanted additional guarantees on the other 85, but Tesla clearly can't match German efficiency
https://electrek.co/2019/08/16/tesla-loses-model-3...
German car rental firm ordered 100 Model 3's, but after 15 got delivered, they were sick and tired of quality and poor customer service issues. Wanted additional guarantees on the other 85, but Tesla clearly can't match German efficiency
https://electrek.co/2019/08/16/tesla-loses-model-3...
Gassing Station | EV and Alternative Fuels | Top of Page | What's New | My Stuff