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Elon Musk may have done it again

In Q1 2012 Elon Musk's electric vehicle startup Tesla Motor Comp. (TSLA) accelerated its losses, pouring out $89.9M USD in losses.  That's nearly twice the $48.9M USD it lost a year ago.

I. Model S -- Ahead of Schedule, the Perfect Panacea for Losses

Revenue for the quarter dropped from $49M USD in Q4 2011 to $30.2M USD in Q1 2012.    The drop comes as Tesla stopped its Roadster sales in North American.  Tesla continues to sell limited quantities of ~$100K Roadster electric sportscars in some other regions, and it's still drawing revenue from certain business deals.  But overall, the company's current flows of revenue are drying up.

Much like SpaceX, the other venture of Mr. Musk -- who often draws comparisons to the Marvel Comics character Tony Stark -- Tesla is in the midst of a massive R&D push.  And that push appears to be about to pay off.

Tesla Elon Musk
Tesla Motor Company CEO Elon Musk [Image Source: Michael Kelley]

In the good news department, Tesla announced that it will begin shipping its Model S electric sedan to preorder customers early -- next month.  Priced at $57,400 USD, the sedan will be $49,900 USD after $7,500 USD federal electric vehicle tax credit.  Despite costing half the price of a Roadster, the Model S is expected to offer sporty peformance, thanks to lessons learned from the Roadster experiment.

Tesla was profitable during the Roadster era, but post IPO plunged into debt to develop the new mid-range luxury electric sedan, which is expected to sell in much larger quantities.

2012, Tesla says is a "year of two halves", with next month's Model S launch as the dividing line.  The company has 10,000 preorders for the car and hopes to deliver 5,000 this year.
Tesla Model S [Source: Tesla Motors]

CEO Elon Musk says much of what is remaining is just paperwork.  He comments, "Once we complete and document the tests, we will be able to sell our vehicles in the United States."

The earlier-than-expected ship date for the Model S allowed Tesla to up its annual revenue estimate $10M USD, up to $560M-600M USD.  In other words, Tesla expects to be pulling in over $175M USD per quarter -- almost six times its current revenue.  Stock jumped nearly 10 percent on optimism about the Model S.

Even with extra costs, hopes are high that 2013 will indeed be as profitable as Tesla hopes.

Perhaps in part due to Mr. Musk's veteran leadership, Tesla continues to deliver on risky bids in a market that has seen many of its competitors like Fisker crash and burn.  Thus far Tesla's products have received glowing reviews even as startups and experienced players like General Motors (GM) faced more mixed reception.  Likewise, Tesla was never short on Roadster orders -- only production.  That's a bit different from GM whose Volt sales have reportedly struggled.

II. Future Looks Bright

In the short term, the next step is the Model X -- an electric crossover SUV featuring a slick gull-wing rear-passenger door design.  Tesla has already posted $40M USD in preorders on the model before a price has even been announced.  Production follows a similar model to the Model S, with ten to fifteen thousand units expected to eventually be shipped per year.

Tesla Model X [Source: Automobile Magazine]

Tesla will also be building the powertrain for Mercedes-Benz's EV.

Tesla will also start to profit off its deal with Toyota Motor Corp. (TYO:7203) whose ~$50K USD electric RAV4 SUV will launch later this year, powered by a Tesla powertrain.  Toyota's goal is to ship a modest 2,600 units over the next 3 years.

If Tesla's bid to creep into the mid-range market proves successful, the natural next step would be to take yet another high-risk plunge into the non-luxury EV market.  Don't expect that move to come immediately from Tesla, but it is definitely in the company's long term sights.  

Source: AP

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Good to know
By FITCamaro on 5/11/2012 7:21:45 AM , Rating: -1
That the well to do soon will be getting a nice subsidy for buying their cars. I love how Democrats cry about oil and gas "subsidies" (read tax breaks that every one gets for development, research, and other costs) but when you start talking "green" energy or electric vehicles its "WE NEED MORE SUBSIDIES! NO ONE WANTS OUR STUFF WITHOUT THEM!"

Nevermind that oil and gas companies actually pay a huge amount in taxes every year rather than surviving off DOE loans and counting on their customers getting subsidies in order to sell their products.

RE: Good to know
By rlandess on 5/11/2012 9:45:03 AM , Rating: 4
Speaking for myself anyway... The reason I get pissed about oil subsidies is that they make billions off of inflated oil prices and we give them tax breaks. Tax breaks make sense in a developing industry like - electric vehicles - because the risks and benefits are unknown and it's harder to find financing to bring an idea to the market. With oil companies there is a well defined market, there is a known cost and a known benefit for the risks they take in R&D and exploration.


If you're talking about EVs then yes, I want subsidies to bring the price of an EV closer to inline with traditional vehicles because most people can't justify the extra costs of paying for the R&D while there's still a question of whether the industry is going to stand on it's own. When the production volume is up and the costs come down, and when the infrastructure is there to charge your vehicle while on the road. Then it's a much easier choice to make.

That's what subsidies are for, rewarding risk takers that develop an idea before it makes great financial sense. In todays world well established private enterprise doesn't invest in new ideas or social change. That's why the government steps in to provide the incentive that's needed to make change happen(for better or worse.)

Nevermind that oil and gas companies actually pay a huge amount in taxes every year rather than surviving off DOE loans and counting on their customers getting subsidies in order to sell their products.

Oil companies should pay huge taxes when they are the most profitable companies in the world. Whats wrong with giving EV manufacturers a little push to get them off their feet? At some point you have to cut them off if it doesn't work out but I don't think that point has come yet.

RE: Good to know
By Spuke on 5/11/2012 9:50:25 AM , Rating: 2
In todays world well established private enterprise doesn't invest in new ideas or social change.
Please provide factual examples of this. Thanks.

RE: Good to know
By Solandri on 5/11/2012 4:38:45 PM , Rating: 1
That's what subsidies are for, rewarding risk takers that develop an idea before it makes great financial sense.

Subsidies are, in general, a bad idea. They distort the market, creating artificial demand for a product. The risk-taker may be rewarded for something which never makes financial sense. That's what's happening to college tuitions. The government subsidizes loans under the pretense of making college "more affordable". The extra money means two things can happen: prices go up, and/or capacity increases. You want the latter, but there's no way to guarantee that the latter will happen. In the case of college tuitions, it's the former that's happening.

If you want to spur growth in an industry, you're better off just pouring R&D money into it directly. That comes with its own slate of problems (e.g. defense contracts), but the market's supply/demand balance remains undistorted. It forces a more honest appraisal of a technology. "I think we can get this to work for $100 billion." And $100 billion later, either it works and society recoups the cost, or it doesn't and the people advocating it have to convince everyone why we should give them more money.

In the case of energy, another alternative is taxation (kinda the opposite of subsidies). The pretense is that burning oil comes with all sorts of other externalized negatives (pollution, dependence on OPEC, war costs) which aren't fully factored into the price. If that's the pretense you're operating under, then the direct counter is to crank up the tax rate on oil to pay for those externalized costs. Trying to counter it with subsidies for alternatives makes it next to impossible to balance the two, and (as I mentioned above) distorts the market supply/demand balance because now all your energy is subsidized.
Oil companies should pay huge taxes when they are the most profitable companies in the world.

The problem is they're not. That's just a myth made up by people who hate the oil industry and didn't understand math well enough in school to know the difference between an amount and a percentage. They heard Exxon-Mobil posted the largest profit in history, and immediately concluded that meant they had a huge profit margin. (It was because Exxon-Mobil is the largest company in history, not because they had a huge profit margin).

Oil companies are actually about average in profitability. Tech and finance companies are the most profitable. (Exxon-Mobil is under "Major Integrated Oil & Gas" at 7.9% net profit margin, which is almost exactly in the middle of the list.)

RE: Good to know
By tayb on 5/11/2012 10:08:44 AM , Rating: 4
Exxon profited $41 billion in 2011. That comes to $5 million an hour. They pay an average effective tax rate of 17.6%. That is lower than I pay.

RE: Good to know
By JasonMick on 5/11/2012 10:57:09 AM , Rating: 5
They pay an average effective tax rate of 17.6%. That is lower than I pay.
I'm not sure why you got rated down.

People don't recognize that if you give selective tax breaks/loopholes to certain industries e.g. oil production, electronics, software companies, etc., yet charge SMBs the full 30 percent tax rate, that's as much or more of a direct cash handout as a $7,500 subsidy on EVs that sell at low volume.

Let's assume optimistically that 20K EVs sell this year (I think that's pretty optimistic -- I'd say 7-12K would be more realistic). So we have 7.5k x 20k. That's $150M USD.

Now let's say Apple pays an effective tax rate of 17% rather than 30% on a profit of $40B USD (rough estimate based on Q1 -- probably a bit off). That's essentially 0.13 x 40b = $5.2B.

a) That's just ONE company
b) The corporate tax handout is almost 35x as much as the EV subsidy in effective taxpayer dollars.
c) Yes, I know uncollected taxes and spent collected taxes are not exactly the same. But consider that both are essentially compensated by taxation of somebody (individuals and SMBs) at a higher rate, and both practices are likely justified by the same argument/excuse -- that the handouts create jobs.

I'm not defending either practice, just pointing out that the tax handouts to corporations -- many of whom ship scores of jobs overseas -- far exceeds what is being put towards EV subsidies.

RE: Good to know
By lelias2k on 5/11/2012 11:33:24 AM , Rating: 2
Wow, finally great responses to the same-old whining about subsidies.

There is hope after all. :)

RE: Good to know
By Reclaimer77 on 5/11/12, Rating: 0
RE: Good to know
By Shig on 5/11/2012 4:35:47 PM , Rating: 2
The Tesla Model S is the first electric car that competes at all levels at it's price point. It competes with similar 50k cars on performance, safety, technology, luxury, and visual appeal. It's also far ahead on fuel savings, torque, cargo space, and the amount of maintanence required. The only area where it falls behind is top speed. If all you care about is top speed, buy a gas car.

Continuously saying nobody is interested in electric cars is just wrong. You sound like an oil industry lobbyist.

RE: Good to know
By JediJeb on 5/11/2012 6:24:34 PM , Rating: 2
With a range pushing 200 miles, the Model S is getting to what I would think of as a useful vehicle. Now as soon as it comes down in price to what I can afford I would seriously look at it as something to purchase, but right now even the Leaf is beyond my ability to purchase. Maybe in a few years once other things are paid off and the price drops a little more I will consider one. The other think I want to see before I purchase one is durability. I never keep a vehicle less than 7 years, most I have had 10 plus and my current one I have had since 96, so that will be something I factor in too. EVs haven't gotten there yet for me, but when the finally make sense to own I may buy one.

RE: Good to know
By Reclaimer77 on 5/11/2012 7:23:42 PM , Rating: 2
Pointing out facts and using common sense makes someone sound like an oil industry lobbyist?

Something like only 3% of all cars sold are hybrids. Electric cars? Too low to bother calculating. Of course I didn't literally mean "nobody" is interested in them. It's just that, curiously, for all the media and blogger buzz on them, people don't seem to be willing to take the plunge with their own money.

But did you even see the point about EV and oil subsidies that I was making? Or did you just jump in and defend the monstrously overrated Tesla Model S?

Tesla, the foremost independent EV maker, is hemorrhaging money faster than Social Security. The Volt and Leaf are being entirely propped up by the Government, and even they fell WAY short of their sales projections. But yeah, I'm the crazy one.

RE: Good to know
By JediJeb on 5/11/2012 6:17:58 PM , Rating: 2
Exxon profited $41 billion in 2011. That comes to $5 million an hour. They pay an average effective tax rate of 17.6%. That is lower than I pay.

If you have a retirement fund that invests in mutual funds look into what they are invested in. Most will carry Exxon Mobile or other oil companies, in fact I think about 7 our of 10 or the funds available in my 401K include Exxon. Now if 10 million people in this country alone have their retirement tied to a fund with Exxon in it, then that $41 billion profit split among them gives them $4,100 in earnings. That 10 million is less than 10% of US workers that could possibly have ties to Exxon stock. If the number is closer to 100 million world wide, then that means with $41 billion in profits that Exxon contributes $410 per year to their retirement equity. Overall that isn't much when you are trying to build up enough money to retire on any time soon. I also know that yes not everyone invested in their stock have equal shares but you get the picture of what that profit translates to. The company itself does not keep all that money, and it is not only given to a select few in the company.

I myself believe they should end the subsidies, but throwing out what looks like a huge profit with no explanation of where the money goes is using scare tactics to justify a rant against them, not a rational reason for ending them. Also with their effective tax rate of 17.6%, how much of that profit, when spread out among all the recipients of the dividends, gets turned into tax revenue at the second and third levels as it moves throughout they economy? I also used to look at economics as simple A+B=C terms but actually it is a more complex equation than that.

"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007

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