Tesla: An Electric Carmaker Struggles as Its Production Lags

[Swallow Doretti]

Interesting--so it seems Tesla has yet to actually deliver any cars, despite comments from the company that have made people think otherwise.

http://dealbook.nytimes.com/2012/09/...rer-struggles/

As Tesla Motors, a maker of electric cars, burns through cash and misses production targets, it is turning to investors and taxpayers for extra financial help.

On Tuesday, Tesla announced plans to sell five million shares to raise cash. The federal government agreed earlier to waive some conditions of a $465 million loan, easing pressure on the company over the next couple of quarters. The moves raised questions about the long-term viability of the company.

In recent months, Tesla has been ramping up production of its main vehicle, a high-performance sedan called the Model S that goes from zero to 60 miles per hour in 4.4 seconds. Tesla has started rolling out the first cars, but was four to five weeks behind on delivering the vehicles to customers. In the meantime, it is consuming cash at a rapid rate and cut its revenue forecast on Tuesday.

“Tesla’s story is starting to show some serious cracks,” said Carter Driscoll, an analyst at CapStone Investments. “This shows that capital raising is a necessity, not a luxury, as the company had maintained.”

Tesla’s problems could also spark criticism of the government’s energy loan program, which has been heavily promoted by the Obama administration. The program came under fire after Solyndra, a solar-panel maker, collapsed in 2011 owing taxpayers $535 million.

In Tesla’s case, the moves suggested that cash was getting tight.

Under the new terms of the loan, Tesla received extra time to make a future payment, and will not have to pass a test this quarter that compares short-term assets with short-term liabilities.

But the Energy Department extracted a concession that by the end of October, Tesla must submit a plan for early repayment of the loan.

Deepak Ahuja, Tesla’s chief financial officer, said the changes to the loan were “purely a normal course of events” because Tesla’s business model had evolved.

Tesla is now entering a critical phase. The company has fully drawn down the government loan, and shareholders may not be happy with additional stock offerings. Its share price fell $3, or 10 percent on Tuesday, to $27.66 a share, down from a 12-month high of $38.01 in April.

Amid the financial pressure, investors will look for signs that sales of the Model S will lead to strong cash flows.

Mr. Ahuja said that he expected Tesla’s operations to produce positive cash flows soon. In the first six months of this year, Tesla showed a cash drain of $111 million.

Mr. Driscoll, the Capstone analyst, asked: “When do people start to question their ability to execute?”

Tesla will also test customers’ loyalties. Some early customers who have received their Model S cars are extremely pleased. Rob Stelling, a clinical laboratory scientist in St. Helena, Calif., who got car his earlier this month, said it had exceeded his expectations.

“I give more than 10 rides a day,” Mr. Stelling said. “I think I’ve sold at least five.”

Buyers are paying a hefty sum to reserve the Model S. The deposit on the basic model, which sells for about $57,400 before tax credits, is $5,000. Souped-up versions require larger deposits.

Such payments have been a big source of cash for the company. At the end of June, Tesla was holding $133.4 million of reservation payments. But if production delays worsen, customers may question the wisdom of making substantial reservation payments to Tesla.

“I wish Tesla could meet the production target, because it’s better for the company,” said John Griswell, a computer engineer from Austin, Tex., who put down $5,000 for a Model S but had not yet received it. “But it’s also important that they get the product right.”

In the end, Tesla’s fortunes will depend on the size of the market beyond the enthusiastic early buyers.

“People are going to want these cars because they’re great,” Mr. Griswell said.

[patrikman]

That's an interesting article but I can't say I am surprised. I for one (and I doubt I am th only one) am somewhat glad they have made it this far, despite setbacks in the economy and all of the drama involved. You must admit that Elon is an interesting character and I think his vision is unique. I've only seen a couple of Roadsters on the road, but I live quite far from SoCal. I'd like to see him succeed.

[Mazda 3s]

Interesting--so it seems Tesla has yet to actually deliver any cars, despite comments from the company that have made people think

Some early customers who have received their Model S cars are extremely pleased. Rob Stelling, a clinical laboratory scientist in St. Helena, Calif., who got car his earlier this month, said it had exceeded his expectations.

[Lucian1988]

i looked into it, and seems like they are really taking their time with production, mainly because they want to make sure they release a car that wont have any problems. They are banking on customers being so happy, that others will follow.

[Hajduk]

i looked into it, and seems like they are really taking their time with production, mainly because they want to make sure they release a car that wont have any problems. They are banking on customers being so happy, that others will follow.

So I take it, making reliable cars wasn't part of the original production plan? Did they just now decide to incorporate quality control into the process?

[Sledge]

OP didn't fully read the article?

[Swallow Doretti]

I believe that the only "customers" who have so far taken delivery are people who've plunked down a certain level of investment into the company. I don't think anyone who simply paid a $5,000 deposit has yet gotten a car.

It's hard to say, though, because Tesla refuses to reveal either how many cars they've sold, or how many cars have been built. The last I heard anything was in late August, and then supposedly only about 40 or so vehicles had actually been made, all going to investors.

[Rob]

I don't wish them any ill will, but this news is not surprising.

There's a huge difference between taking a Lotus Elise and installing a battery and electric motor and engineering and building a whole car from scratch.

This thing will have problems, probably some pretty big ones. The question is whether Tesla deals with it appropriately. Sounds like they are on the right track with their slow initial production.

I'd like to drive one to see what it's like.

[Sledge]

Considering that the Model S can be optioned over $100k, if they have to take their time to ensure the quality is of the same level, then that's the best course of action.

[GolfVIDriver]

On one hand I can see the issues being raised, and the concern about production.

On the other hand, the technology seems really well baked, the cars are getting rave reviews, and the vision behind them is being implemented (Read Motor Trend's SuperCharger article).

ALl they need to do is execute on production, and if the cars live up to their billling, I think Tesla will be ok.

Now, lets talk about Fisker, who I think is in even bigger trouble.

[Swallow Doretti]

Now, lets talk about Fisker, who I think is in even bigger trouble.

Well, Fisker has delivered about 4,000 cars total, so I don't think they're as bad off as some people think.

Regarding Tesla, I don't wish them ill-will, but some of their plans just feel like fantasy (in particular, they've never adequately explained how they're going to sell and service cars for someone living in, say, Texas--which actually is home to several growing EV markets).

Long-term, I still think Tesla will be acquired by another OEM (probably Toyota), who will phase Musk out and bring in people who, while less visionary, may also help ground the company in some level of reality.

[Sledge]

The last thing Tesla needs is some news story with the headline "First Volt and Karma and now Tesla. Will electric cars burn down your house and kill you? Story at 11."

[Mike!]

Everyone step back for a moment and think about what it takes to start up a car company from scratch. This isn't Toyota adding Lexus and Scion as marques, or BMW buying up a defunct company's assets, tweaking the formula, and rolling out their own MINI.

Tesla is a true startup investor-funded (by which I mean not a joint venture through an existing automotive giant) American car company. In ~6 years, they've developed excellent technology and are on the cusp of mass production for their first complete in-house design. This isn't the era of the Model T anymore. Duty testing, crash testing, and quality expectations add a lot to a production timeline. Meeting 21st century expectations from scratch if you haven't been building cars for decades isn't easy.

If the Model S launch isn't successful, it will be a sad testament to the difficulty of breaking into the mature auto manufacturing industry. If it succeeds, it will be a great American success story and a treatise on the continued value of entrepreneurship and innovation in driving industry and economic success.

[mrothwell]

So I take it, making reliable cars wasn't part of the original production plan? Did they just now decide to incorporate quality control into the process?

Translation:

I have no idea what quality control is

Some problems take more time to solve than others. The stakes are REALLY high for Tesla right now, if they mess up their first product launch, they're sunk. In my opinion, the production schedule is much less important than the quality and design of the vehicle.

[2.0T_Convert]

If I remember correctly from a Musk interview he personally likes to be there to look over and inspect finished products. If there is any flaw it doesn't leave the building. If that is really true then production must move along pretty slowly.

[GolfVIDriver]

Well, Fisker has delivered about 4,000 cars total, so I don't think they're as bad off as some people think.

Regarding Tesla, I don't wish them ill-will, but some of their plans just feel like fantasy (in particular, they've never adequately explained how they're going to sell and service cars for someone living in, say, Texas--which actually is home to several growing EV markets).

Long-term, I still think Tesla will be acquired by another OEM (probably Toyota), who will phase Musk out and bring in people who, while less visionary, may also help ground the company in some level of reality.

True, but Tesla seems to be executing the product better - less compromise, better quality and usability, better reviews, etc.

[rich!]

On Tuesday, Tesla announced plans to sell five million shares to raise cash. The federal government agreed earlier to waive some conditions of a $465 million loan, easing pressure on the company over the next couple of quarters. The moves raised questions about the long-term viability of the company.

dilute those shares some more to pay the loans...

[pretzelogik]

Has Mr. Musk finally plucked a lemon?

[Swallow Doretti]

True, but Tesla seems to be executing the product better - less compromise, better quality and usability, better reviews, etc.

The reviews are all based off of one single vehicle--Elon Musk's personal car. It's the same press car that everyone is driving. I'm not sure that's a fair comparison.

[Swallow Doretti]

More details: http://www.thedetroitbureau.com/2012...ction-targets/

Looks like they really only began production on September 1, with actual deliveries in the past few weeks.

“As of September 23, 2012, we have produced a total of 255 Model S vehicles, including 77 Model S vehicles produced during the week ended September 23, 2012. We anticipate producing over 300 vehicles in the third quarter. We plan to continue our ramp up in order to reach our objective of weekly production of 400 Model S vehicles before the end of 2012 which should enable us to produce more than 20,000 Model S vehicles in 2013,” Tesla said in the SEC filing.

“We now anticipate that we will deliver between 200 and 225 Model S vehicles to customers in the third quarter and between 2,500 and 3,000 Model S vehicles in the fourth quarter. As such, we believe we will be approximately four to five weeks behind our previously announced Model S delivery goals as of the end of 2012,” it added.

“To increase the rate of production of Model S, we have taken a number of actions, including working with suppliers to help improve quality and timely delivery of parts, adding automation and second shifts in certain manufacturing areas, increasing training of our manufacturing staff to improve manufacturing processes and making changes to personnel in our quality control department. We anticipate, however, that manufacturing and supplier issues will continue to arise,” it said. The production snarls mean that Tesla’s revenue will drop to $44 million during the third quarter, placing a serious strain on the company’s cash reserves.

Tesla said that on the positive side, it has now logged approximately 13,000 reservations for the Model S, up from approximately 11,500 on June 30. In addition, the company’s 11 design stores around the United States have logged more than 1 million visitors, so it believes there will be sufficient consumer demand when the company reaches its objective of building 400 cars per week.

[leaftye]

Tesla previously claimed they could be in the black next year. I don't see how that can happen unless they really crank up their deliveries.

[Mike!]

Tesla previously claimed they could be in the red next year. I don't see how that can happen unless they really crank up their deliveries.

Not cranking up their deliveries is a sure way for them to be in the red next year.

[leaftye]

Not cranking up their deliveries is a sure way for them to be in the red next year.

Oops, I meant black.

[rlfletch]

Hmm, which company am I going to put my money on? The one that has pushed a bunch of overpriced, over-styled, under-engineered, poorly packaged, poorly reviewed, crappy driving, boutique cars that catch on fire regularly out the door? How about the one that is putting the product FIRST, as in, not letting it out the door until high quality standards have been met, and has produced a well reviewed, excellently packaged, game changing advance in the automotive field? History is littered with car companies that have rushed 1/2 baked cars out the door to a resounding thud. Delorean? Tucker? Elon is doing it right by making sure the product is right before selling a crap load of them and then having to explain why they suck. Make a good product first, the money will follow. I hope they can float the loan until larger production runs can meet quality expectations.

[leaftye]

Make a good product first, the money will follow. I hope they can float the loan until larger production runs can meet quality expectations.

And it's mostly for naught if they can't keep getting cash injections. Even with that, it just makes it that much harder to get out of the hole. I believe the Volt took less $$ to develop, is selling thousands per month, but I think they're still supposed to take 7 years before it turns a real profit. What's that mean for Tesla?

[MK5golf]

Who has actually seen a Tesla on the road? This summer I saw the Elise looking one in downtown Montreal, on two different occasions actually.

[Jordan 191]

Time for Elon Musk to talk some more trash.

http://forums.vwvortex.com/showthrea...t-a-high-price

[leaftye]

Time for Elon Musk to talk some more trash.

It's his job to boost the stock price.

[Jordan 191]

It's his job to boost the stock price.

If that's his strategy, I'm rating his company "SELL".

[Non_Affiliated]

So I take it, making reliable cars wasn't part of the original production plan? Did they just now decide to incorporate quality control into the process?

I don't wish them any ill will, but this news is not surprising.

There's a huge difference between taking a Lotus Elise and installing a battery and electric motor and engineering and building a whole car from scratch.

This thing will have problems, probably some pretty big ones. The question is whether Tesla deals with it appropriately. Sounds like they are on the right track with their slow initial production.

I'd like to drive one to see what it's like.

Probably getting it right on a Anit-bricking Software for the battery.

And it's mostly for naught if they can't keep getting cash injections. Even with that, it just makes it that much harder to get out of the hole. I believe the Volt took less $$ to develop, is selling thousands per month, but I think they're still supposed to take 7 years before it turns a real profit. What's that mean for Tesla?

Not to mention Chevy has much more dealer Network than Tesla.

[rains]

I for one, really hope they suceed.

[leaftye]

I for one, really hope they suceed.

I would think that most of us agree, even though quite a few of us enjoy seeing a train wreck as well. It would be better for this company to succeed. I just have a hard time seeing how they can when they're forever limiting production. We're 10 years down the road and they're still on the pot.

[rlfletch]

We're 10 years down the road and they're still on the pot.

Say what? Ramping up production on an entirely new from the ground up car that was engineered and designed in 5 years is "Still on the pot?" People here have ridiculous expectations. This isn't some Factory 5 kit car but a machine that has been built to challenge the very best in the class. If you could talk to people in the industry you would hear how amazed there are at what Tesla has managed to do in such a short time.

[Air and water do mix]

Say what? Ramping up production on an entirely new from the ground up car that was engineered and designed in 5 years is "Still on the pot?" People here have ridiculous expectations. This isn't some Factory 5 kit car but a machine that has been built to challenge the very best in the class. If you could talk to people in the industry you would hear how amazed there are at what Tesla has managed to do in such a short time.

Agreed. It's really amazing that they've gotten this far. They do have one advantage over the big companies, though, they don't have emissions regulations to worry about. That is a really huge burden they don't have to carry, but crash standards? Yeah, they still have to deal with that! Then there's chassis development, powertrain engineering, interior development, electrical engineering... All are critical. This doesn't even take production engineering into account, and that's huge to a startup.

Plus they can basically afford ZERO mistakes without potentially sinking their company.

They've done very well indeed. As long as they can get over this last big start-up hurdle, I think they should be able to do pretty well. Everything else developed from this point can be derived from what they have, but to go from the Roadster to the S is freakin' huuuuuge.

[OrangeA4]

I know someone who works in design for Tesla.
All I can say is they take their time. They have a high attention to detail. They are trying to put the best foot forward with every step. For all the Volt Haters, Leaf Haters, and Prius Haters, they understand they need to really do it very right to help smash the resistance to buy electrics in the long run. I really hope they can maintain this. It may take them 20 years or more to get a more mainstream acceptance. Look at the Japanese car invasion of the 70's and 80's and look at them now. I just hope Tesla can maintain the cashflow to really do this. The recent news of the rapid charging stations shows a commitment to the whole infrastructure that I think is impressive. I feel like its either going to be a profound win or a profound fail. But I'm proud that they are trying. It would be cool to see a long term success happen.