Before you and Larry jump all over Fred, let's try to quantify the magnitude of the difference of cash flow breakeven and profits. Since there is little amortization of intangible assets, we're primarily talking about depreciation.
I had a discussion with David Archibald about a year ago concerning depreciation levels and he indicated, if my memory serves me correctly, that the average depreciation charge per line was roughly $ 3 million per year based upon a 5 year life (we were talking about "lines and other back-end assembly and packaging equipment" of approximately $ 16 mm depreciated over a 5 year period, although I did hear at one later point of subsequent "lines" costing not $ 16 mm but $ 7-$10 mm apiece).
Now 1,800 batteries per line at approximately $ 70 per battery is roughly $ 40 mm per year in revenue. And at a 60% gross margin, the $ 24 mm contribution would cover the current burn rate. In my opinion, if the company can produce that on one line - and my personal opinion on much closer to one shift than to 3 shift production, then the depreciation, although 7%-8% of the initial 1,800 battery production per day, would clearly become a less significant factor on subsequent incremental production on that line.
So for me, at least, the difference between 1,800 batteries as cash flow breakeven and profit breakeven is not nearly as important as one makes it - certainly not as important as getting those first contracts.
I would also add that Jacques's comments corroborate what I have heard both directly and indirectly recently attributed to discussions with LD. Thank you, Jaques T. |
