Tesla Loses More Than $4,000 On Every Car Sold

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How do you stay in business when your company is losing more than $4,000 per car? That is just insane. :eek:

The Silicon Valley automaker is losing more than $4,000 on every Model S electric sedan it sells, using its reckoning of operating losses, and it burned $359 million in cash last quarter in a bull market for luxury vehicles. The company on Wednesday cut its production targets for this year and next. Chief Executive Elon Musk said he's considering options to raise more capital, and didn't rule out selling more stock.
 
You've got to wonder why they can't raise the price 4k. If you spend 80 grand on a car, do you care if it's 84?
 
Wonder if the "loss" is due to other expenses related to the car, i.e. buying new land to build new factories, or R&D on other stuff. Yanno kind of like how every company regardless of how big they are always ends up having a loss for a certain period of time to expand and gain tax advantages of not having made profit.
 
nilepez said:
You've got to wonder why they can't raise the price 4k. If you spend 80 grand on a car, do you care if it's 84?
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Didn't read the article, but wouldn't surprise me if it's on purpose for tax implications.
 
Bleedblue12345 said:
They aren't "losing" money selling the car, they are losing money because of r&d expenditures.
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Exactly... The article is worded in a way to make you assume that it's related to the price of the car. Which it's not, as stated. The title looks more interesting though titled the way it was, which was the point. It's a total sum of everything they're losing money on made into an equation dealing with the price of the car more or less. I'd guess it's expenses like R&D etc as well.
 
Yeah, clickbait headline is clickbait headline. What else is new?

They were making money off the first few years of production, and sales are still climbing, but now they have to pay for the design of a completely new model of car, and the gigafacotrey build.
 
There is a big difference between losing money for every car sold and spending more money than you make. Considering the profit margin on the Model S is over 25%, Tesla is actually in the latter category.

Making the Model S is profitable. Rapidly expanding into a major car manufacturer while making the Model S is not.

Look at it this way. You want to open a McDonalds. It will cost you $500,000, which you borrow from a bank. The first year you bring in a million dollars in revenue, and make $100,000 profit from sales. However, you borrowed and spent $500,000 opening the store, which means you sort of lost $400,000 that first year.

Would Reuters say you lose $2.00 for every Big Mac sold? I guess so.
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Taken from other comments...
 
Considering how massively unprofitable other similar EV startups have been Tesla's finances are refreshing positive. I honestly think the Model S is priced in the way it is to maximize sales volume. It's price competitive against other large luxury cars. The Model S is the only reason Tesla isn't massively in the red, development costs are very high for new technology.
 
Auto-makers are subsidised in every single country around the world. It's all about R&D and plant upgrades. This article just applies an operating loss in a way that attracts clicks instead of using more common accounting methods.
 
ZenDragon said:
The probably make it back on the LEV points from California.
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Nope, that loss already includes all the money they are making on selling carbon credits in California.

If it wasn't for all the electric car and green subsidies, they would be losing way more money.
 
It's entirely R&D.

To build a working car is pretty cheap. There already exists pure electric cars, that retail for less than $25k and make a profit when sold.
 
Quix said:
Considering how massively unprofitable other similar EV startups have been Tesla's finances are refreshing positive. I honestly think the Model S is priced in the way it is to maximize sales volume. It's price competitive against other large luxury cars. The Model S is the only reason Tesla isn't massively in the red, development costs are very high for new technology.
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Given that it's their only car, that makes sense ;)
 
"Tesla, most of whose cars are built to order directly, delivered 11,532 cars in the second period and said it had an operating loss of about $47 million, for an operating loss per car of about $4,000."

Super click bait suggestion, also super bad assumption/malicious supposition.
 
Semantics said:
"Tesla, most of whose cars are built to order directly, delivered 11,532 cars in the second period and said it had an operating loss of about $47 million, for an operating loss per car of about $4,000."

Super click bait suggestion, also super bad assumption/malicious supposition.
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Yeah could just as easily say that the $2000 upgrade to get the deluxe (whatever whatever) in the car is losing $6000!
 
DracoNB said:
Taken from other comments...
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It's very unlikely that any accountant would put the borrowed $500,000 as an expense since it was use to purchase an asset in the restaurant. Only the interest paid would be considered for profits and loss.
 
SLee said:
It's very unlikely that any accountant would put the borrowed $500,000 as an expense since it was use to purchase an asset in the restaurant. Only the interest paid would be considered for profits and loss.
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Yes but if you borrowed the money in year 1 or zero and spent it the following year, your cash flow statement would show cash flow from operations as positive, cash flow from financing as flat (because it occurred in the previous year), and cash flow from investing as massively negative.

This article is ridiculous, you can't measure a company the way they do. For tesla you need to net cash flow from operations with certain line items from cash flows from financing because of the way leases are accounted for. In addition, you get some wonky stuff going on based on how current assets and liabilities are shifting around which can cause lumpiness in the cash flows from operations section.

In addition, Tesla will make more money down the road as volume will lead to lower costs and as more cars are on the road their service departments will make more money as well.

By the way, I'm a CFA charter holder and I'm a portfolio manager so I'm pretty sure I know what I'm talking about.
 
SLee said:
It's very unlikely that any accountant would put the borrowed $500,000 as an expense since it was use to purchase an asset in the restaurant. Only the interest paid would be considered for profits and loss.
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I misread your post. In addition to interest there would be depreciation expense.
 
Probably planning to make it back in future certified parts replacements (i.e. battery packs), maintenance, and quick charge station costs.
 
Xpl1c1t said:
Probably planning to make it back in future certified parts replacements (i.e. battery packs), maintenance, and quick charge station costs.
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Check my other post earlier in the thread, they are taking all expenditures - profits / cars sold = amount "lost" per car... terrible "reporting".
 
DracoNB said:
Check my other post earlier in the thread, they are taking all expenditures - profits / cars sold = amount "lost" per car... terrible "reporting".
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Wow, yeah, that's an absolutely horrible calculation. GJ Reuters!
 
R&D and massive capital expenditures for expansion generally cost money....lots of money. Garbage article.
 
sfsuphysics said:
Wonder if the "loss" is due to other expenses related to the car, i.e. buying new land to build new factories, or R&D on other stuff. Yanno kind of like how every company regardless of how big they are always ends up having a loss for a certain period of time to expand and gain tax advantages of not having made profit.
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Yup, R&D.
 
Things will not get easier for Tesla as the market for electric luxury cars will continue to get crowded. I want them to succeed, but CAFE means new entries by the other companies.
 
amdgamer said:
Things will not get easier for Tesla as the market for electric luxury cars will continue to get crowded. I want them to succeed, but CAFE means new entries by the other companies.
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Which is why they are expanding into different market segments. Most of what they have been doing has been gearing up for the Model 3...the supposed ~$30000 sedan that's supposed to come out in a couple years.
 
In fairness, the major investments Tesla has made for its future are what took away from their profitability. Other companies are not trying to move 10x as many cars within a few years, on new technology in a hostile market that is partial to the long-established players who support the powerful energy lobby that is anti-Tesla. Even on an enthusiast tech forum as this, most of the Tesla news threads are critical (although in large part due to the abundance of news critical of Tesla....it's Steve's job to report the news, not make the news, right :D)

It compares Tesla unfavorably to established automakers.....did those established automakers increase production 60% this year or bring their revenues up 40% year-over-year (mentioned nowhere in the article)?....Now looking at year-end financial results using Chrysler as an example, there was 4th quarter net income of $1.62 billion, but $962 million of that was a non-cash tax benefit. So it was a one-time accounting gain outside of Chrysler’s operations, in a similar manner how much of Tesla’s losses are capital expenditures on paper. Actually, while Chrysler would have reported net income of $619 million that quarter, due to a prepayment of a UAW medical benefits note, Chrysler in reality suffered a net LOSS of $71 million the first half! Not due to building and selling its cars, but what’s good for the gander is good for the goose. Notice no one really engaged in a big discussion about that? Just saying that if your car company is at least 75 years old, then you might not find negatively-spinned headlines plastered across the news quite as much!

If you want to look at actual automotive operations though, for 2015Q2 Tesla reported gross profit of $268 million on revenue of $1.12 billion for a profit margin of around 23.9%....Huge! That's not even including the ZEV credits naysayers are fond of pointing out. So its operating economics are sound if it was content to rest on its laurels and stay a niche player forever, but the company is spending what it takes to succeed, and Elon’s personality shows that appeasing shareholders for short-term gain is not high on his priorities. Would GM beancounters ever think a Ludicrous mode option worth any consideration at all? Fiat/Chrysler, and every other automaker for that matter, can only dream of margins that high, as most of them are in the single digits. CAFE doesn't ensure profitability or desirability. In fact, while we’re talking about EVs, Marchionne even came out and asked people not to buy its own 500e, saying Fiat/Chrysler lost $14,000 on every one sold! The more 500es sold, the higher the loss as it is a per unit deficit from selling at a loss, like an XBox would cost more to produce than what it sells for. That's not the same as spreading out the entirety of a company's spending. Tesla doesn't "lose" anything per unit sold as the article insinuates, quite the opposite since each Model S sold brings a hefty return on its production cost. Big difference between compliance cars and cars that people actually want!

Pointing to other car companies' profits is something that’s not directly comparable to Tesla’s situation as a newcomer in the industry and the things they are trying to do….They’ve gone from a pace of delivering a few thousand cars a year to 50,000 cars a year in a short amount of time and have plans to double that within a year’s time….Their R&D costs are massive in order to support the gigafactory, Model 3 and the X, with only one model to sustain them, and they continue building out superchargers, company service centers and stores which hit them on an accounting basis that other carmakers needn’t be concerned with….But that’s not a “loss”, they keep those stores, they keep that factory, and it’s an investment for the future. It’s not like being saddled by union and pension debts like the others. The amount of money they are making on every Tesla sold shows that their earlier efforts are paying off - just like today’s efforts will pay off in the coming years. The takeaway from all this is that demand outstrips supply on an order of months and the company is growing. People have been prophesizing their demise since before the Roadster came out 7 years ago....They didn't even have a stock price then!
 
I'd really want to have a Tesla S model if only I was that rich, would be cool to be driving a state of the art luxury electric car, at least you don't have the moral issues of fossil fuel depletion to think of as say driving in some of those muscle cars and the car is also both wicked fast at acceleration as well as very nice looking to me.

I love the way Tesla is really pushing R&D for electric cars, especially regarding batteries, Tesla has some really impressive performance there compared to other offerings.

It's only $80k in the US? Damn, In Finland it costs 86k and in EURO so more like 95k for the cheapest Tesla S model while the expensiest 700hp is 135k EUR.

Oh well, at least you're able to dream. ;)
 
sfsuphysics said:
Wonder if the "loss" is due to other expenses related to the car, i.e. buying new land to build new factories, or R&D on other stuff. Yanno kind of like how every company regardless of how big they are always ends up having a loss for a certain period of time to expand and gain tax advantages of not having made profit.
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This is exactly right: their total cap expenditure was taken into account in this figure. Tesla is still in development mode, building factories, infrastructure, R&D etc. They have so much investment gain they can easily do this and still stay well in the black. Once they start mass-scale production and one-time development expenditures slow, the overall margins will go up significantly.
 
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