Chevy Volt a Failure - GM to Layoff 1,300

It may be turning an accounting profit, but it still needs more cash. And it is not profitable by selling cars. As I pointed out, they have been selling emissions credits to the large automakers, which either have to buy those credits or sell cars for losses in California. They have a bunch of weird revenue streams like that one.

Elon Musk, in his typical PT Barnum style, has been tweeting about some news tomorrow. Something about putting his money where his mouth is in a major way. ... Speculation is that it is going to be yet ANOTHER secondary stock offering to raise more cash. The company is more than $800 million in debt. It's cash flow numbers last I got a look at it last year had it operating on fumes. SOMETHING has to give. It can't just be finally producing cars, after quarter after quarter of making promises and not delivering on them.

The last offering, Musk actually didn't put up very much of his own money. This time, if that is what happens tomorrow, I am certain there was no chance of more equity being issued without him putting his own money up. If it happens, it is going to further dilute the equity they have already issued. And it doesn't solve the huge debt load.

The reason Tesla won't just go away, Cran, is because Elon Musk is a master at finding ways to raise money to blow through, well beyond the point that most other people can't bullshit people. He has already managed to blow through $800 million, another $125 million in equity, and if there is another offering tomorrow (no idea, just guessing based on his tweets), the company will very well have raised more than a billion dollars to have produced what amounts to a few thousand cars. $465 billion of that debt came from US taxpayers.

I could create something that doesn't go away if you let me blow through $900 + million of combined equity offerings and debt.

 

FYI, this is just unsustainable. ... I hope Musk is putting up his own cash to keep funding the mess.

From the annual report Tesla filed a month ago. ... Tesla burned through another $60 million in cash during the fourth quarter. The revenue doubled to $413 million last year (what Musk trumpeted), but the company's negative cash flow from operations also doubled ($266 million in 2012 vs. $128 million in 2011).

The net loss for the year was $396 million (more than 56 percent greater loss than the $254 million it lost in 2011).

The bottom line, last year, the company lost 96 cents for every dollar of revenue it took in. And little to none of that revenue was even from selling cars. ... what everyone is excited about.

Being cash flow positive is just not enough, because the company has dug a huge hole. It has to do much more than that. It needs cars flying out the door at pretty good gross margins. That might happen. And if it does, Tesla could dig itself out of its hole sometime in the next decade.

I personally wouldn't bet on it.

I think others kind of look at the picture and feel the same way, as evidenced by how much short interest there is in the stock. (with the caveat that this is a stock that is not trading on any fundamentals, and so those shorts may get squeezed at various points as the stock trades on hype. ... even if in the long run, those people shorting the stock may have been right, just not good at timing things).

 

Yes. Pretty typical of P.T. Barnum Elon Musk. ... yells like a carnival barker and then produces a cheap card trick.

There was a lot of speculation regarding the company dealing with financing issues based on his tweets. I speculated in my post about some kind of new funding, possibly another equity offering (although I wondered how that could possibly happen at this point; he should have exhausted options to raise money). Maybe a pay down of the government loan somehow. He created an expectation of something that actually addressed the market concerns with the company's debt load.

What your link didn't include was how Musk is putting his money where his mouth is. That looks at the new "lease" arrangement -- you will be able to "lease," partially on the taxpayer dime of course, due to the various subsidies -- his car for as little as $500 a month, according to his hucking. Of course, even that figure isn't really accurate (typical of Musk), because people were quick to go to the calculator on Tesla site, and you have to make a lot of assumptions and live in very specific places to come anywhere near a $500 a month car payment. The typical monthly payment, with the financing arrangement, is going to be higher than that.

The part where he puts his own money up, at least sort of, is that Musk said he will personally pay the percentage difference at the end of a three year lease between a Model S and a depreciation figure that gets pegged to a Mercedes Benz S class sedan. This isn't really a lease. You actually buy the car with a loan and after three years, you can sell it back to Tesla at a prearranged depreciation level.

On one hand, it is kind of cool, because one criticism of these cars is that with the batteries comprising such a large part of the cost, they depreciate much more quickly than other cars. The putting his money where his mouth is part, I guess, is that he will personally fork over that difference between the book value of a Mercedes and the Model S if you want out. ... and he is personally guaranteeing that depreciation guarantee, if Tesla goes out of business. On the other hand (my edit of the post), from your link, apparently that Mercedes is a car that depreciates the most quickly (it was on a list from Popular Mechanics labeled, "10 Cars That Depreciate Like a Stock Market Crash").

Regardless of the value, or lack of value of that guarantee, it was kind of piddly news given all of his hype and the expectations, of course, which was why the stock sold off (about 3 percent) in after hours trading.

 

I just read more. And did the math. That Mercedes has a 43 percent residual value after three years. So basically, his guarantee is that if you decide to hand your Tesla back over to the company (or Musk if Tesla is out of business) at the end of 3 years, you will get at least 43 percent of the original purchase price back.

So, for example, let's say you buy the base model of the 85 kilowatt battery car, with no add-ons. You finance the car at a purchase price of $79,900, as part of this deal. If you live in the right place (for example California, which will subsidize your purchase with $2,500 on the taxpayer dime), you conceivably can put zero money down, according to Musk. Which isn't really true, because the $7,500 Federal subsidy you need to put toward the downpayment doesn't come off the purchase price of the car. You have to wait until you file your 1040, and then get a rebate. So you might have to front $7,500 for a year or more to get the no downpayment "lease." THEN, if you have perfect credit, under the terms, you can qualify for what he expects will be a 3 percent loan. For that $79,900, your monthly payment will be $959 a month. To come up with Musk's $500 a month number, you have to factor in assumptions about how much you will save on fuel, be able to take a business tax deduction that you have to qualify for, and then (and this is ridiculous) put a dollar value on the time you save -- being able to drive in the carpool lane and not having to pump gas. You can estimate the value of your time any way you want, to make yourself feel like you are not paying a lot to drive the thing. ... as long as your check for $959 a month clears, knock yourself out.

Regardless, at the end of three years, assuming you got back your $7,500 you put up from the Federal government, and you didn't have to put up any more money because you live in a state that subsidizes the car, such as California, you will have put more than $34,000 into the car via your monthly payments. The big news. ... if you want to sell the car back to Tesla (or Musk, if Tesla is out of business) at that point, the guarantee is that you will get back 43 percent of the original purchase price -- in the case of the car with the 85 kwh battery, but no additional options, your resale total will be $34,350 for a car you financed for $79,900 (minus anything you saved or got back due to government subsidies, which will depend on what state you live in).

 

For those interested in Tesla. ... How not Kosher does this all sound?

http://bloom.bg/XdUCsK