Elon Musk sounds a bit more cautious about profitability in his latest Tesla Update. Here are a couple of pertinent snips.
Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels.
I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult.
In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.
As a result of the above, we unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn’t any other way.
Another Musk Whiplash
Bloomberg has some interesting profitability quotes in its report Elon Musk’s Whiplash in Tone on Profit Sends Tesla Shares Sliding.
Profitability Comments
- 2Q earnings call (Aug. 1): “I really want to emphasize our goal is to be profitable and cash-flow positive for every quarter, going forward. I feel comfortable achieving a GAAP income positive and cash flow positive quarter every quarter from here on out. That’s a — there may be occasional quarters, where we pay back a big loan or something, where there may be just because we paid back a big loan. But absent that, it would be cash flow positive.”
- 3Q earnings call (Oct. 24): “We expect to again have positive net income and cash flow in Q4. And I believe our aspirations I think will be for all quarters going forward. I think we can actually be positive cash flow for all quarters going forward, leaving aside quarters where we may need to do a significant repayment; for example, in Q1 next year. But I think, even in Q1, I think we can be approximately flat in cash flow by end of quarter.”
- 3Q earnings shareholder letter (Oct. 24): “Our earnings profile has flipped dramatically. Sufficient Model 3 profitability was critical to make our business sustainable — something many argued would be impossible to achieve.”
It’s a mystery why anyone believes anything Musk says.
Mike “Mish” Shedlock
For most people an electric vehicle would make an excellent city or commuter car. As in second (or third, or even primary with secondary backup for long trips) vehicle. But because there’s a lot of fixed cost expense in owning an automobile (mostly taxes, registration, insurance and storage), a somewhat limited use vehicle at $50K+ isn’t going to be in the cards for most Americans. Especially one that is going to need a $10,000 battery replacement at some point, possibly before the loan is paid off depending on how hard it is driven.
“Especially one that is going to need a $10,000 battery replacement at some point…”
Imagine car owners taking out a bank loan to replace the battery in their car.
Karl Denninger: “The batteries are both expensive and create a hellish amount of pollution and environmental damage in their production…” “There is no economically-rational technology to recycle lithium batteries either, unlike traditional starting batteries for cars (lead/acid chemistry) which can be infinitely recycled at low cost.”
The few poorly designed electric cars that don’t have thermal management and have small electrical capacities have unjustifiably ruined reputation of well designed electric cars and scared away consumers from the good EVs.
As an example, Nissan Leaf. It does not have thermal management for the battery pack (ie working approach to deal with excess heat generated by battery pack itself that causes degradation). And also the battery pack is very small (ie it causes more heat to emit in the battery pack due to internal resistance compared to bigger pack).
These two factors combined together make battery pack to degrade quickly. FYI – most PHEVs have or will have the same problem as Leafs (assuming you drive them in Electric mode).
Well designed EVs like Teslas, Bolts, I-Paces don’t have this problem. And one could expect on average their battery packs to last 200K+ miles.
It’s a mystery why anyone besides the super rich spends $50K on a car. If one’s net worth is $1M, you just spent 5% of your net worth on being cool like your man-crush Elon. Pro tip: you can get stuck in traffic in a used Toyota for a fraction of that.
Funny you mention the rich folks who buy Teslas. I see them all over Aspen. I think one of the reasons is because they can park it at their vacation home and not have to keep fluids maintained. If you only drive a vehicle a few times a year modern gasoline will go bad, fluids will turn acidic and starter batteries will fail. Parking a Tesla in the garage at 30% charge (or whatever the recommended storage level might be) means you just jump in and drive.
Not to mention they usually have a fleet of vehicles available.
Mish why did you delete comment from my other account where I suggested that you are a communist in libertarian clothing?
only cowards who try playing sock puppet game create multiple accounts to like and support his main account.. and i agree with mish such people should be removed
Tell me how am I supporting my original account that Mish blocked from this account?
I asked Mish to explain this quote:
> It’s a mystery why anyone believes anything Musk says.
because I really don’t see how Musk contradicted himself w.r.t Q4 earnings.
Tell me how am I supporting my original account that Mish blocked from this one?
I asked Mish to explain:
Because I don’t see how Musk contradicted himself w.r.t. Q4 (Musk said he still expects profit. Musk never implied that Q4 will be better or worse than Q3). Then Mish blocked me and I had to create a new account.
That is some nice communism grade censorship that Mish enforces here. He was/maybe still is shorting Tesla (if you don’t believe check older articles) so it appears that he blocks anyone who disagrees with him.
Just like with BitGold affiliation when he tries to pump up the Gold.
His house his rules.
The end of Tesla.
No more insane government (state and federal) tax credits.
More and more competition from “real” car companies.
The TINY demographics who want to pay $50,000 for a car with a 120 mile range is just about tapped out.
Low oil costs.
No profits. Massive debt.
How can it end ANY other way?
Dude, get some education and learn what is Total Cost of vehicle Ownership instead of looking solely on MSRP to compare cars.
Model 3 makes a lot of sense in a lot of locations compared to 30K+ gasoline cars.
The Model 3 can make a lot of sense in an area of the country with very mild winters and is mostly flat. And used for commuting.
FYI for cost of ownership. Lots of states (especially blue ones) are proposing all sorts of extra taxes for electric cars (because they don’t “pay their fair share” for maintaining the roads).
So you are trying to tell me that my Model 3 won’t be driveable in cold climates?
You certainly know much more about EVs than the actual EV owners. Either in CA or Norway.
$50,000 to go 110 miles.
And Lord help you if you don’t have a nice warm garage and leave the EV in the cold overnight.
1. mpg goes down for gasoline cars in winter too. The only benefit for gasoline cars is that you can recycle engine waste heat to heat the interior of car.
2. that is Model S not Model 3
3. I have crunched the numbers and at least in West Coast Model 3 easily beats any 30K+ gasoline car in terms of TCO within 5-10 years.
Anyway, I am not willing to waste any more of my time discussing how bad EVs are with a troll who most likely has not even been near to a electric car. Yeet
Both of my kids are engineering students (oldest is well into his eng courses) and they can explain (and have) the benefits and problems with electric cars. Gasoline has many benefits over EV but EV does have advantages. I have friends with EV’s that also know the negatives. Some problems to be worked on are range, battery cost/replacement cost, hazardous materials in batteries, time to recharge, etc.
You mentioned cost analysis to 30K+ but there are many gas cars far less than $30K that current EV’s cannot touch. What is the battery replacement cost on a Model 3? I would love to own an EV but currently gasoline is still a cheaper alternative. I can drive for days, weeks, or months and spend only a minimal time refueling (less than 5 minutes). I also work on all four of our cars so maintenance is not a big deal. Get me a way to recharge fast, more range, and cheap battery replacement and I will think about changing. I can also run my cars on ethanol if I wish (I have done it on several). Ethanol is a renewable fuel. I could switch to biofuel also but at added cost to convert.
That is the reason why I said that EVs make sense for the “most people in the west coast”. Having said that there are few exception and you highlighted few valid concerns and few partially valid concerns.
About battery pack replacement costs… That is valid concern for EVs that don’t have proper thermal management system. Like Nissan Leafs. Not so much for Teslas, Bolts and I-Paces. Secondary EV market already reflects this in deprecation where used Nissan Leafs are sold with assumption that you will soon need to replace battery pack.
About being able to do your own maintenance… That is valid concern for ICE cars where you can actually do your own maintenance and owner is handy. Presumably like Toyota and GM. Not so much for BMWs, Audis where you have to either go to dealer or get pirated ISTA/D software to reset adaptations after certain DIY maintenance works (like changing battery or transfer case fluid. Some independent mechanics are smart enough and refuse to service such cars while others indies will accept work and sooner or later break the car). Yet there are still plenty of German cars on road.
About initial costs … That is valid concern if you always go for lower end ICE cars. Like Prius. But there are a lot of 30K+ ICE cars on roads (pretty much any German car or any performance car you see on the roads)
About range … For Teslas range is not anymore a valid concern. I have been on couple road trips where I have driven almost 1000mi in a single day by charging in Tesla Superchargers. Unless you eat while driving driving and have a bottle to urinate in the car, I don’t see how roadtrip in Tesla EV would be any slower than ICE car. This of course does not apply to other EVs that can’t charge in Tesla superchargers or have small battery packs. I wold never go on 1000mi road trip in Jaguar I-pace, Bolt or Leaf.
For all my friends who are in need of car I either tell them to get barely used, cheap ICE car (like Prius) or just go for Tesla. That is of course unless they are rich enough and don’t mind to take big one-time deprecation on their shiny BMWs, Audis, Lexuses, Mercedes, Cadillacs once EVs inevitably go mainstream.
Tesla will grow , not in US but in China.. China for some reason focused their future on renewable energy / electric vehicles and given high priority on less oil dependence..
funny how US bicker internally while china can do this easy
Watching Elon learn about cars reminds me of the first time I tried to hit a real fastball. Those idiots at Ford, GM, Toyota, Mercedes, etc. are looking a lot more like Ted Williams to him now, I’d bet.
Regarding Musk’s two problems.
Batteries: Musk is ahead, but for how long
Production: His assembly line and quality are both a joke. The stories about his cars are believable and no other car manufacturer in the world has such quality issues.
Third problem – overall cost
I do expect electric will win out. With or without Musk.
But fourth problem – valuation is absurd even if Tesla does survive.
Little history lesson.
Electric cars were the FIRST cars mass produced and used in America. The electric car WAS and the car market from the 1880s to the 1920s.
Even Henry Ford’s wife had an electric car.
But the market spoke. Consumers wanted a car with a much greater range (ie – batteries can only hold a fraction of the power as compared to the power contained in a tank of gas). Additionally, electric cars were much more expensive than ICE cars.
Hmmmm – sounds like the same match-up in 2019
You don’t even know what electric cars are capable nowadays. Yet you seem to have very strong opinion.
Modern batteries are better than lead acid batteries used in early electric cars. Drivetrains are better than the motors used in early electric cars. They aren’t as good as ICE drivetrains and batteries will never match/exceed the stored energy in gasoline, but everyone is betting that the electrics will improve enough to negate a lot of the ICE advantage. Remember that once the electric starter became common electric drivetrain research and engineering basically stopped other than a few isolated uses like forklifts and golf carts. Now that there’s money to be made there’s a lot of R&D going into electrics. And I’ll bet there’s some breakthrough we’re not privy to given that every manufacturer is in the process of converting. Or maybe they’re just doing what Uncle Sam (and it seems the marketplace) is wishing for.
Mish, have you considered to go short Tesla again? Perhaps with outright stock short this time instead of burning money through decaying put options?
I think the upcoming recession will throw a wet blanket on many emerging technologies. Somebody/someone has to fund these new technologies and that appetite will wane as investors switch to wealth preservation vs wealth creation.
Here’s the straight dope on the unique Model 3 motor design: “Now there’s some first principles thinking. Whoever first thought of lacing the stator with rare-earths.” Musk should cut to the chase and quit making cars and just sell the inverter/motor/gearbox units to the auto makers.
Great link greg, thank you
Elon’s darn close to pulling this thing off. But he has two problems, and one is fixable.
Manufacturing skills. Everyone notes that Tesla’s are often having to be hand made because of the poor manufacturing design. Old line auto manufacturers have this down pat (well maybe not the French). There are a lot of engineers out their with the requisite skills. Hire them, pay them well, and listen to them. This is fixable.
Batteries. Li-ion batteries are expensive. Mostly because they use a lot of cobalt and cobalt is expensive. And Tesla doesn’t even make its own batteries. Would Ford be profitable if it couldn’t make its own engines? Probably not. So Tesla needs to figure out how to make its own batteries, preferably with a lower need for cobalt in the chemistry. This may not be fixable.
The long-term key to success is making a battery that is comparable in cost to an ICE. Internal combustion engines are extremely complex, require lots of steel and aluminum, and lots of precision tooling and humans to put them together. They’re not cheap. Batteries are vastly less complex but use expensive ingredients. This is where the Elon has to earn his “genius” tag.
Tesla actually has least cobalt among all EVs using li ion baterries.
How about this for a problem.
There is just a TINY demographics who wants to pay $50,000+ for a car with a range of 120 miles and whose resale value basically goes to zero when the warranty has expired.
120 miles? What are you smoking?
While driving at 70mph I am getting 290mi. at 45mph I am getting 350mi on a signle charge.
Now try driving somewhere NOT on a sunny warm day over flat terrain.
Like winter. In the NE. With some hills. You will be lucky to get a 120 mile range. And Lord help you if you leave the vehicle outside in the cold.
Want to know how much less range an ICE vehicle gets in these same cold conditions…
I drove from California to British Columbia. BC had freezing temperatures.
So what is your point? Why don’t you just try to educate yourself about electric cars first instead of embarrassing yourself by spreading these false facts that range drops almost 3x in winter conditions?
Obviously – math and physics are not your strong suits.
“false facts that range drops almost 3x in winter conditions?”
Sorry, but you are just a troll who don’t know what car that teslarati article talks about. It is not Model 3!!!
Here are some real numbers from my Model 3:
In 25-32F temps I still got ~300Whr/mile with my Model 3 while driving at hwy speeds. So with 75KWh battery (that Model 3 has) it is 250mi range. In winter city driving it would be actually much better. So this is what 50K car gets you. Not your imaginary 110mi number.
About problem #2. Actually Tesla uses least cobalt among competition using li ion cells. And plans to use none.
There is a 3rd problem: Charging time. I’m certain it takes substantially longer to charge batteries than to fill a tank of gas.
“It’s a mystery why anyone believes anything Musk says.”
Also President Trump.
Fortunately for C-C, TDS does not seem to be a terminal illness.
Rent free – 24/7. In your head.
Trump’s lies and his low intelligence base swallow it whole.. that’s ok since most of his base cannot think beyond simple propaganda line..
Musk supporters on the other hand , are mostly educated and hip , and yet they got suckered HARD by musk because he feed them fictional promise after promise …
which supporters are worse ? the educated that got suckered by musk or the low intelligence and non educated trump supporters ?
The worse suckers are those who think they are libertarians. Yet they are suckered by a communism/authoritarianism sympathizing blogger.