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Tesla's Model S

The Tesla Roadster
Uncle Sam stands a better chance of getting its money back from Tesla than from GM or Chrysler

Tesla Motors has received approval from the United States Department of Energy for up to $465 million in low-interest loans. The electric car manufacturer had faced significant financing difficulties due to the global credit crunch and resulting recession, despite having an order backlog of over 1,500 vehicles. This forced a delay in the acquisition of a Californian production facility and the subsequent plans for several models.

The loans are part of the Advanced Technology Vehicle Manufacturing Program, which provides incentives to new and established automakers to build more fuel-efficient vehicles, including hybrid and electric vehicles. The ATVMP was created in 2007 and appropriated funding in September 2008. The $25 billion program is supposed to reduce America’s dangerous dependence on foreign oil and create “green collar” jobs.

The program is not related to any economic stimulus package or bailout funding that General Motors and Chrysler have received.

“Tesla will use the ATVM loan precisely the way that Congress intended -- as the capital needed to build sustainable transport,” said Tesla CEO and Product Architect Elon Musk. “We are honored that the US government selected Tesla to be among the first companies to participate in this progressive program.”

Tesla Motors plans to draw $365 million for production engineering and assembly of the Model S, an all-electric family sports sedan that carries up to seven people and travels up to 300 miles per charge. The company expects to start production of the Model S in late 2011 in a new assembly plant employing approximately 1,000 workers.

Tesla will use the remaining $100 million for a powertrain manufacturing plant that will supply all-electric powertrain solutions to other automakers, greatly accelerating the availability of mass market electric vehicles.  The new factory is expected to employ about 650 people in California. Tesla is currently in the final stages of negotiation for both facilities.

The firm recently signed a deal with Daimler, which will provide engineering and financial support in exchange for a ten percent equity stake. Daimler will use Tesla's powertrains in its second generation electric Smart cars starting in 2012.

Tesla remains privately owned, with several hundred million dollars in funding coming from Elon Musk (former President of Paypal) and several venture capital funds. Google co-founders Sergey Brin & Larry Page are significant investors, as is former eBay President Jeff Skoll.

The company plans to reach a breakeven point by the end of this year, as it increases sales by opening half a dozen new stores throughout North America and Europe. Its new London store will open on June 25.

If all goes well with production and sales of Model S vehicles, Tesla intends to produce an affordable third model, codenamed BlueStar. This electric vehicle for the masses is targeted to cost around $30,000, with development being  funded by profits from the Model S sedan.


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RE: It's Good to be in DC
By bdewong on 6/23/2009 1:26:08 PM , Rating: 2
I was opposed to the bailouts and do not agree that this is the kind of spending the government should be doing. This is just a pre-bailout bailout (wonderfully marketed but horribly run company). I really have to wonder who makes the decisions on who the government should fund, especially when they are able to get private funding.


RE: It's Good to be in DC
By kellehair on 6/23/2009 1:32:56 PM , Rating: 2
Agreed.

How many cars are they going to have to sell to pay back that $465M by the way?


RE: It's Good to be in DC
By captainpierce on 6/23/2009 1:41:44 PM , Rating: 2
quote:
If the business case was sound and it was a good investment, there would be plenty of private capital available to invest in Tesla.


I was wondering the same thing. Sounds like another government-financed boondoggle.


RE: It's Good to be in DC
By MozeeToby on 6/23/2009 2:27:28 PM , Rating: 2
Well, to get 465M in revenue they would have to sell 4650 Roadsters, that doesn't seem impossible given their back order of 1500 cars. Of course, all that revenue isn't available to pay back a loan, there are costs involved in building each Roadster.

However, the great thing about selling a high end, highly engineered product, the engineering is already done. I would imagine that the costs of production for a Roadster are < $50000, so I'll just double the number and say ~9000 Roadsters or ~20000 of their luxury sedans they hope to have out soon. Over the life of the loan, none of those numbers seem unrealistic to me.


RE: It's Good to be in DC
By kattanna on 6/23/2009 2:31:31 PM , Rating: 1
$465,000,000

lets keep it simple and not take interest into this.

lets say they can payback $5,000 for every car sold

so with 93,000 cars they can pay this back. considering they have made what a whole 500 cars so far..

im doubting the ability to repay.


RE: It's Good to be in DC
By hduser on 6/23/2009 4:25:48 PM , Rating: 3
quote:
How many cars are they going to have to sell to pay back that $465M by the way?


Just one car, if they can find someone who'll pay $465 million for it.


RE: It's Good to be in DC
By ArcliteHawaii on 6/23/2009 4:27:53 PM , Rating: 2
quote:
How many cars are they going to have to sell to pay back that $465M by the way?


Well, at $100K a shot they only have to sell 4650 to make $465,000,000 in revenue. They already have a waiting list of 1500. I realize that revenue != profit, but if they use the loan to build factories, they'll have very low amortization costs, and be able to pay it back much quicker. At any rate, we're talking having to produce 1000s of cars to pay back the loan, not millions. It's fairly easily achievable.


RE: It's Good to be in DC
By bdewong on 6/23/2009 4:44:49 PM , Rating: 2
Revenue isn't even close to equal to revenue. Remember we are dealing with full electric cars where the battery packs alone costing more than ten thousand dollars by itself. Then tack on all the other parts of the car, labor, cost of expansion and building new showrooms and factories, you get a lot closer to that $5,000 profit per car that the previous poster had mentioned.

Okay, let's say that they make $10,000 pure profit for each one sold, it will only take 4,650,000 cars sold before they can pay of only the government's loan.

So with 4 million electric cars out there, maybe we'll have a problem with our infrastructure as well. Good thing we have the government, it can pay for that too.


RE: It's Good to be in DC
By bdewong on 6/23/2009 4:47:32 PM , Rating: 2
quote:
Revenue isn't even close to equal to profit

-edit


RE: It's Good to be in DC
By noirsoft on 6/23/2009 5:30:30 PM , Rating: 2
Your math is way off. You calculated as if the profit per car were only $100.00 not $10,000.00

It takes only 46,000 cars to pay back the money with a $10,000 profit. A factor of 100x less than you said, and much easier to do.


RE: It's Good to be in DC
By ArcliteHawaii on 6/23/2009 5:57:22 PM , Rating: 2
Well, two things.

1. Profit margins are usually 30% or more on sports cars. I don't know if that's the case with Tesla or not, but usually sexiness, low production numbers, and cache come at a premium.

2. Their profit margins are better for this deal, since the fixed amortized costs are lower with this loan that they otherwise would have been.

Even so, a $10K profit means they only have to sell 46,500 cars to pay the load back. That's not really that many.


RE: It's Good to be in DC
By Spuke on 6/23/2009 6:23:28 PM , Rating: 2
quote:
Well, at $100K a shot they only have to sell 4650 to make $465,000,000 in revenue.
Niche car sales aren't linear, it's a curve. Usually hits its peak early then trails off after a while (usually after initial demand is met). If they go another year without fulfilling a decent amount of those orders, expect a good portion of those to drop off. I expect at least 2000 cars to be bought.


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