Elon Needs More Money (Again)

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Last month, I wrote about Tesla CEO Elon Musk’s contemptuous and breezy dismissal of questions asked by financial analysts about the cashflow situation at Tesla. Would the company need yet another infusion of money to remain afloat? Lame! Next question.

That was Musk’s response.

As it turns out, it’s Tesla that’s lame.  The company – Musk – just laid off several thousand employees, about 9 percent of its workforce – which is one way to raise cash (by not spending it on worker salaries) when you don’t want to admit you need another infusion from investors – or realize you might not be able to get one because those investors are becoming gun-shy about giving money to Elon.

I’ve been pointing out for years that Tesla is a net money-losing operation, despite all the crony capitalist advantages – including electric car quotas in states like California, which force other car companies to either build EVs they can’t sell (or sell at a loss) or buy “credits” from an electric car manufacturer (Tesla) which the electric car company then uses to offset its losses.

Even so, Tesla has lost something on the order of $5.4 billion dollars so far, according to most estimates. Yet – until quite recently – most media coverage of Tesla has focused on what amounts to financial Fake News of the most egregious kind, such as the hype-driven value of Tesla stock. It’s true the stock price zoomed upward like a bottle rocket on the 4th of July. But what was driving this?

Not anything of value.

Analysts refused to analyze the fact that Tesla loses money on every car it sells. That it remains in business only because of investor infusions and deposits given on cars that never seem to materialize.

Well, the electric chickens may finally be coming home to roost.

At some point, you either make money – or you don’t. If you don’t, you have to find people willing to give you more of it. When you can’t do that anymore, you are forced to scale back. You let people go in order to husband what resources you’ve still got, in the hope that maybe you’ll be able to ride it out.

Elon is running out of money. His operations aren’t sustainable.

That is the real story behind the mass layoffs at Tesla and it’s still not being told. A healthy and growing company doesn’t have to cut its workforce by almost 9 percent. There will likely be more cuts, too – unless Elon can raise another $1.3 billion or so, which is the sum Tesla is expected to lose over the next four quarters. Moody’s Financial Services said in March that Elon might need as much as $2 billion to keep the doors open another year.

That would bring the total losses to more than $7 billion dollars so far.

To put that figure in some perspective, Ford – which mostly makes non-electric cars – earned a sum last year almost exactly equivalent to what Tesla has lost since the company first began making electric cars fifteen years ago. The Blue Oval reported a net profit for 2017 of $7.6 billion dollars (PDF here).

But how many people outside the car business know who the CEO of Ford is? Do you? He is not the light of the media’s eyes, the subject of flattering profile pieces touting his far-sighted genius. Elon is.

Why?

The guy has been losing other people’s money for fifteen years!

And: Battery powered cars are nothing new. They are hardly . . . Teslian. Tesla – the man – was a brilliant theorist and inventor who among other things gave us AC current and so made the transmission of electrical power over great distances both practical and economical, two qualities which this writer has for years now been pointing out Elon’s cars lack. Because Elon chose to focus on (and spend other people’s money on) electric cars that are speedy, sexy and techy on the theory that – like iPhones – these would wow the rich and then through economies of scale draw in the less-well-heeled.

But the iPhone is still expensive, an elite product for people with the disposable means and the inclination to spend three or four times the cost of a perfectly serviceable generic smartphone.

Very much like the Tesla – the car – which likewise remains too expensive to be other than an elite product for people with the disposable means and the inclination to spend three or four times the cost of a perfectly serviceable IC-engined car. A $15k Corolla may not be as speedy or as sexy or as techy as a $40,000 Model 3 – but it gets them from A to B for about one-third the cost of Elon’s electric luxury-sport sedan.

The tragedy is that if Elon had never come along and carny-barked investors into investing in a losing product, there might be a practical and economical electric car on the market. But thanks to Elon, everyone making electric cars thinks they have to make them like Elon does – speedy, sexy and techy rather than simple and cheap.

The real Tesla would have grokked the difference immediately.

. . .

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31 COMMENTS

  1. I know this won’t be well received here as people are pretty dug-in to their anti-Musk positions, but I think this a typical case of libertarians attacking any of their own that become successful.

    I don’t understand the anger.

    1. Tesla is subsidized cars for the rich.
    => they are tax credits. Don’t we always claim to be pro loophole? Anything that allows people to pay the government less is a good thing right?

    2. They received a loan during the crisis.
    => so did every other American car company, actually to a much larger extend. Tesla was the first to pay back.

    3. They aren’t making a profit and the other car companies are
    => they are obviously in a didn’t phase, without the assets and trying to build the infrastructure for an automotive revolution. You may not want an electric car but and that’s fine(I have no intent on buying one) but there is obviously a market for them and all reports are that they drive much better than gas cars

    Attacks on the cars are usually that they take too long to charge up and they are expensive. Yes they take longer, but they put the gas station in your garage. With a 300 mile range, it Would make life easier in 99.99% of situations even with a 5hr charge.

    The plan is clearly to try to iterate down to a less expensive car. The Model 3 has disappointed as it will compete more with BMW and Audi than Toyota, but the Model Y is next up.

    People expecting this company to go bust seem to think Elon isn’t capable of simple math. I don’t know how he plans to fund the next 2 factories, but he obviously has one and it is simple strategy to not disclose it. A quick search on his background will show that he is quite capable with quantitative thinking. A detailed search will show he is one of the more brilliant analytical minds in the world. He has contempt for NY finance guys who aren’t rigorous but pretend to be.

    Musk has always described himself as a pro-anarchist libertarian. (his recent comment about being a socialist was mocking them. he had a couple of previous tweets where he attacked them more directly)

    Shouldn’t we respect him as a risk taking entrepreneur? If you hate him because he was willing to succeed and get tax credits for his customers, seems you are just a hater. We should be proud of this guy.

    • 1) The any loophole not to pay taxes is something only some libertarians believe in. IMO naive libertarians who don’t understand that the state aims to manage society and these selective “credits” and such are one tool to do it.
      2) TM exists on making money from electric car “credits” they sell to other manufacturers to comply with government edicts.

      “Musk has always described himself as a pro-anarchist libertarian.”

      Anything remotely like that died out after he leveraged his pay-pal generated wealth to enter into the management class. Today Musk is a crony capitalist huckster at best. One of the wealthy who thinks he should manage society at worst.

    • Hi Free,

      In my lifetime, the thing that’s been cast to the winds is the everyday freedom people used to enjoy. You still had to file a 1040 and there were still taxes on your property, but you could generally go about your everyday business unmolested. You weren’t ordered to present ID at every turn, could let your young kids just jump in the back seat of the car and go for a ride without having to wrap them up like Hannibal Lector for saaaaaaaaaaaaaaafety. Most people could handle an off-color joke told at work and if they couldn’t – well, learn. Bar owners could let their patrons smoke; you could see your friends/family off at the gate. Schools did not have armed SA manner roaming the halls.

      This was as recently as the late 1980s.

      What the Hell happened?

      • Eric,

        Woemen happened.

        As females increasingly became a larger part of the working, voting and “policy making” groups, they brought their high minded Cult of Safety with them, along with the stifling Grundyism that goes hand in hand with it.

        MADD happened, in short.

        Woemen, as a group, as a voting demographic, consistently value safety over liberty.

        And the two are diametrically opposed, increase safety and you decrease liberty, always.

        • Amen, AF!

          Women are also socialistic- almost universally- even the ones who deny it.

          Women do not think in terms of cause and effect.

          A man sees a bum on the street, and says “Why doesn’t that able-bodied slob get a job!”

          A woman sees the same bum, and says “Why don’t YOU help him?”- and YOU don’t even have to be present, because she will vote to force you to help him through her “elected representative” [Who represents her, not you, because her wishes are in line with their agenda for you and I and her!).

          People predicted it at the time, but few listend: Giving women the vote was the end of Western Civilization. Notice as SOON as that came about, the socialists/communists came out of the woodwork, because now they had an instant 50% of the population who whose vote they could count on.

          • Their main objective is to do away with the natural order. We’re currently seeing the end of male dominance and masculinity as the older generations die off and are replaced with Gen Xers and millennials. The millennial soy boy is basically the standard for men going forward.

            Technocracy (paganism) must be crushed, otherwise it’s game over for humanity.

  2. Sadly, I don’t think Elon is going away anytime soon…The whole point of subsidising Tesla’s “project” was to kidnap the idea of an industry wide electric car originating in Detroit and transferring it to Silicon Valley.
    I first thought that the personality cult around Musk was mimicking Howard Hughes…but as time goes on, I am wondering if Tesla’s business model is not made to emulate instead Canada’s Bombardier. Alphonse Bombardier was credited with inventing the Ski-Doo a century ago, and his corporate offspring has evolved as an almost Government Agency (so much its losses are subsidized by all level of Canada’s governments) into a major diversified transportation conglomerate. Canada loves the “monopolist structure” as government sponsored market leaders. Tesla is starting to look a lot the same (even if it is subsidised privately). And it wants to diversify into subways, fast trains, avionics and even space….Why did government decide to privatize space travel? So private individuals (or “groups”) can Klondike the whole universe…so while the moon’s ownership might eventually be the cause of dispute, once private industry reaches future away spatial objects…they will all be privately ‘klondiked”…So, it’s all about the power of monopoles…Who knows, maybe Amazon will become a main owner of Tesla in the near future…but we have, as a nation, effectively lost the race to an “peoples” electric car.

    • Hi Demts,

      Agreed. This idea of the electric car as an expensive, high-performance/luxury car . . . subsidized and mandated into existence – is bizarre and vicious. Why doesn’t the Left object? How is Tesla any different than subsidized McMansions for rich people?

      Oh, but they are green! Extremely energy efficient; well insulated! The very latest in instant hot water heating! Etc.

      Yeah, but they are 6,000 sq. feet and you are making people who live in 1,200 sq. foot houses subsidized them.

  3. What happens when Dr. Tyrell calls his baby home?
    What generation will its successor be, and will that entwicklung have solved the “not in contact with reality” problem?
    And who be payin’ fo’ all dese droids, anyways?

  4. Musk was in Chicago to promote his newest pipe dream today. Basically it is a pipe.

    https://chicago.curbed.com/2018/6/14/17465168/mayor-emanuel-elon-musk-announcement-ohare-express

    Basically he want to build a high speed train from DT Chicago to O’hare Airport. The funniest part of it all. He thinks they will begin work building it in a mere 3-4 months!!!! I don’t even think Musk has the ability to part the red tape that fast.

    The downtown “station” is basically a hole under a building that has already cost taxpayers $300 million (the unused “super” station under block 37 that was never completed due to runaway costs).

    Watch this not happen……..

  5. If you can afford it, cars are like guns. You need one, but really should have many since every design is a compromise. They usually do one thing better than any other. I like everything about my K1500, except the mileage. I like my mercedes diesel, but occasionall you need to feel measurable acceleration. I’d like to have a Barrett 50 and a Tesla, but just not enough to pay the premium. Now if only I could get someone to subsidize a Barrett for me….

    • Hi Ernie!

      If it weren’t for Tesla, if the government stayed out of it – entirely – someone might and probably would have built a 1,500 lb. car powered by a three cylinder diesel engine that averaged 100 MPG. Or a similar in concept electric commuter car that cost $15,000 or less. It might not get to 60 in “ludicrous” time and probably would not have a dashboard-spanning LCD touchscreen. But it would get you to work and back without burning gas and without burning a hole in your wallet.

      • Check out the Euro Spec VW Polo TDi, it gets an honest 80MPG (personally witnessed by me the driver for 2 weeks in the UK) in a fairly nice serviceable roomy for its size and a relatively simple package. Also CHEAP

  6. 9% sounds like the typical corporate HR nonsense of purging the 10% or so of employees who are not politically protected.

  7. Tesla is one of the many “Unicorns” in Silicon Valley, all of which command stratospheric valuations while hemorrhaging cash. Don’t know how long investors will keep throwing money at them.

  8. It’s a shame the Nikola Tesla heirs (are there any?) haven’t sued this farcical twat off the face of the Earth by now. Apparently if there were any heirs, they’ve already been bought off, cock-blocked by Uncle, or just don’t care. Sadly Tesla, the man, was not a savvy businessman, and other greedy parasites like Edison took financial and political advantage of that fact. The way Elon is going about this EV charade, the “car” should be called the Edison, overpriced, stolen technology, inefficient, unaffordable, and getting along by any dirty crooked deal on, under, or over the table with Uncle and the 1%ers, Just like the maggot Thomas Edison was!

  9. A one-time tax credit to offset the cost of buying a Tesla. But no break on registration, taxes, insurance, or the myriad of “other” that becomes TCO.

    From the Colorado DOT website under “taxes and fees:”
    These taxes are based on the year of manufacture of the vehicle and the original taxable value which is determined when the vehicle is new and does not change throughout the life of the vehicle.
    The specific ownership taxes you paid for a registration year are on the back of your registration receipt.
    Ownership tax is in lieu of personal property tax. Vehicles do not need to be operated in order to be assessed this tax.
    The ownership tax rate is assessed on the original taxable value and year of service
    https://www.colorado.gov/pacific/sites/default/files/SOT%20Attachment%20-%20Tax%20Tables%20with%20Examples%20%281%29.pdf

    Again, if you’re able to afford multiple vehicles, maybe a Tesla or other electric would make a good commuter car. Drive to work, park it all day, then drive it back home. Park it in the garage and plug it in to the charger overnight. Does it need to be a luxury vehicle for a daily commuter? It might be nice, but probably not necessary (and who’d pay $70K for a commuter car?). I can only afford one vehicle. Well, I could probably afford multiple vehicles, but it would be a stretch to own a Tesla given the insurance and annual fees. My Audi was just starting to get old enough to make the annual registration and tax a little less wallet-rapey when (Uncle forced) VW make me an offer I couldn’t refuse. My Cherokee costs me a few hundred dollars a year to register. The Tesla S is about $30K more than I paid so that means the registration is that much more. And I’m sure the insurance mafia is keeping a pretty close eye on repair costs and accidents too.

    But you probably already have a vehicle in the garage that serves the purpose of being your commuter car. And that can also be used on the weekend, and on vacation and just about any time you like. No range anxiety. No delays in your journey. And TCO spread out over every use, not just one part of your life. This time of year I start seeing more motorcycles on the drive in to work, and I’d probably join them if I didn’t have a company vehicle. If you can ride year around that’s even better. And TCO is so much lower since taxes and insurance are much lower. Downside is you might get wet or chilly. But here in the US we love to do the opposite of what makes sense. Motorcycles are for crusin’ with the boys on weekends, not for practical efficient transportation. Much better to drive the 7 passenger SUV to work and back. Or try to drive a Tesla cross country.

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