carmaker's running out of cash
Tesla Motors, the automaker which is Silicon Valley's best hope to build an electric-car industry, will run out of cash in three months if it does not raise new financing. CEO Elon Musk has confirmed Valleywag's report that it has spent most of its customers' deposits and is running low on cash. In an interview with Reuters, CEO Elon Musk conceded that the company only has $9 million in the bank, as a concerned Tesla employee told us yesterday. Tesla's contract with customers specifies that deposits can be used for "working capital" — but last I checked, "working capital" means liquidity available to a company. It does not mean "money that has gone out the door." So Tesla may arguably be in breach of contract with the 1,200 customers who have put between $5,000 and $60,000 down for its Tesla Roadster. Tesla has only delivered 50 cars.
Musk has previously said that Tesla will be able to turn cash-flow positive in nine months, if it receives new investment. He now says he's seeking an additional $20 million from Tesla's current investors, and expects to get it next week.
Do the math: If Tesla has $9 million in the bank, and requires another $20 million to get to positive cash flow over the next nine months, then it is burning at least $3 million a month. And that's after it laid off 24 percent of its workforce and announced plans to shutter its Detroit office.
Read More: After firing, Second Life maker insists they're hiring, LinkedIn founder cancels trip for layoffs, Digg users even smarter than we thought, Tesla "refocusing" 9:00 AM on Fri Oct 31 2008
By Owen Thomas
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18 Discussions Classic view | Expand all Collapse all Start a new discussion Show: Oldest first | Newest first | Most popular 9:21 AM on Fri Oct 31 2008
DonSchenck
9:21 AM on Fri Oct 31 2008
Mr. Ponzi ... your car is ready.
(NOT a Ponzi scheme -- actually a pyramid. But "Mr. Pharoah, your car is ready" just didn't seem to have the same impact)
DonSchenck Mr. Ponzi ... your car is ready. (NOT a Ponzi scheme...
9:27 AM on Fri Oct 31 2008
3 replies TiffanyAntimachus
9:27 AM on Fri Oct 31 2008 Realize you're reporting here, but living and working in SV, shouldn't we all WANT Tesla to succeed? Tough business model and high expenses aside, the company is symbolic of both a new direction for an old industry and new innovation in the valley. And NO, I don't work there! And I surely can't afford one of their cars. But I do like what they're doing - and that they're doing it here.
TiffanyAntimachus Realize you're reporting here, but living and working in... 3 replies by fakemichaelarrington, Motoko Kusanagi, SakinaCabiri
fakemichaelarrington
10:39 AM on Fri Oct 31 2008 @TiffanyAntimachus:
They attacked the problem from the wrong side. Basically, they have shipped 50 cars and raised $150M+, so that means from design to concept, they spent $3M on a car that sells for a $100K. Even if they ship *30 times* that amount of product, the investment is still gone. They should have just made an electric drivetrain business, stayed away from all the consumer BS, and worked directly with auto mfrs. Might have had a chance.
fakemichaelarrington @ TiffanyAntimachus : They attacked the problem from... Motoko Kusanagi
11:12 AM on Fri Oct 31 2008 @TiffanyAntimachus: Yeah, because SV is all about selling expensive shit for loss-leader prices without any long-term strategy.
SV will be a footnote in America's history between 1995 and 2010.
Motoko Kusanagi @ TiffanyAntimachus : Yeah, because SV is all about... SakinaCabiri
12:33 PM on Fri Oct 31 2008 @Motoko Kusanagi: Ouch, cold much, Kusanagi? FWIW though, I never liked CentralCal.
SakinaCabiri @ Motoko Kusanagi : Ouch, cold much, Kusanagi? FWIW...
9:31 AM on Fri Oct 31 2008
Robleh
9:31 AM on Fri Oct 31 2008
'last I checked, "working capital" means liquidity available to a company. It does not mean "money that has gone out the door."'
They said they had $9m in cash which is only one type of asset. Presumably they have some cars sitting in the factory at or near completion. This does not mean all the depositor's money is 'out the door'.
Robleh 'last I checked, "working capital" means liquidity...
9:36 AM on Fri Oct 31 2008
poxpopulus
9:36 AM on Fri Oct 31 2008 Now is just the perfect time to do private capital fund raising.
poxpopulus Now is just the perfect time to do private capital fund...
9:39 AM on Fri Oct 31 2008
1 reply htrodblder
9:39 AM on Fri Oct 31 2008
Mr. Musk is starting to look a lot like the last guy who tried and failed
Preston Tucker
htrodblder Mr. Musk is starting to look a lot like the last guy who... 1 reply by UstinCallisto
UstinCallisto
11:29 AM on Fri Oct 31 2008 @htrodblder: Wait, don't you mean John DeLorean?
UstinCallisto @ htrodblder : Wait, don't you mean John DeLorean?
9:41 AM on Fri Oct 31 2008
2 replies ballhog
9:41 AM on Fri Oct 31 2008 I can't believe they found 1200 suckers. It's a lotus retro fitted with a motor, batteries and controller. This should be a small engineering firm turning these out. I think Telsa is top heavy and is going to fall over.
ballhog I can't believe they found 1200 suckers. It's a lotus... 2 replies by stopcrazypp, stopcrazypp
stopcrazypp
3:13 PM on Fri Oct 31 2008
@ballhog:
You are seriously trivializing the complexity of the Tesla roadster. First of all for the battery pack, you should see how much testing and development going on with battery packs even with the mainstream automakers. And that's even in the case of buying the whole battery pack from a supplier. Tesla has to design and produce their own.
Then there's the controller; in the Tesla it provides smooth acceleration, regen is tuned to simulate deceleration from a manual transmission, and it also provides traction control with the motor. The transmission which they have had a problem with, also helps in that smoothness. Read this article:
[www.motortrend.com]
This is hardly trivial, a great example of contrast is the RUF Electric Porsche:
[www.roadandtrack.com]
RUF is a fairly established Porsche tuner, yet their car is more of what you define: a car retro-fitted with off the shelf motors, batteries, & controllers, retro-fitted on a stock car (they even kept the transmission).
Heck, even the EVs Chrysler unvealed are stock cars retro-fitted as you describe and Chrysler is a big corporation.
Then there's the extensive work done to the body & chassis to ensure that the car is light-weight, and also keeps sport-car dynamics, with the heavy rear weight bias. Also the work done on exterior design. Then also the work to ensure the performance of the car (0-60 3.9 seconds, recent report of 12.7 second 1/4 mile).
This is hardly something a small engineering firm can accomplish. Then there's also their development of Model S, which had been going on for quite a while. All of this requires quite a bit of resources.
So no it's not just a simple conversion of a Lotus. You can look at conversions from other companies, like AMP Saturn Sky's, AC Propulsion's eBox conversion of the xB, Hybrid Technology's Mini conversions and see how much more extensive the work on the Tesla Roadster is.
stopcrazypp @ ballhog : You are seriously trivializing the... stopcrazypp
4:57 PM on Fri Oct 31 2008
@ballhog:
Another thing I forgot to add is Tesla had to go through all the federal safety regulations since they are selling a new car rather than offering to convert a car that the consumer buys seperately. This is a big part of why Tesla requires a lot more capital than the other EV companies, and why the Roadster isn't just a simple conversion.
stopcrazypp @ ballhog : Another thing I forgot to add is Tesla had...
10:06 AM on Fri Oct 31 2008
prsiii
10:06 AM on Fri Oct 31 2008 Silly investor, "working capital" means money goes out the door by definition. What else do you use it for, packing it in the car's firewall for insulation?
prsiii Silly investor, "working capital" means money goes out...
10:08 AM on Fri Oct 31 2008
2 replies gkanapathy
10:08 AM on Fri Oct 31 2008 If they only need $20 million and 9 months to get to cash flow positive, that beats Facebook. And a lot of other Silicon Valley companies.
gkanapathy If they only need $20 million and 9 months to get to... 2 replies by fakemichaelarrington, gkanapathy
fakemichaelarrington
10:41 AM on Fri Oct 31 2008 @gkanapathy: I am pretty sure that is associated with an ambitious revenue plan that calls for selling a lot of cars quickly.
fakemichaelarrington @ gkanapathy : I am pretty sure that is associated with... gkanapathy
11:48 AM on Fri Oct 31 2008 @fakemichaelarrington: I have no doubt you're right. But again, there are plenty of Silicon Valley startups with ambitious (and longshot) revenue plans that raised and spent more, and still need more.
I'm not saying the company is likely to succeed. I really have no idea. But they don't sound out of line with plenty of other startups. In fact, given how capital-intensive car-making is compared with websites, I'm just surprised at how little they claim to need.
gkanapathy @ fakemichaelarrington : I have no doubt you're right....
10:40 AM on Fri Oct 31 2008
1 reply DB
10:40 AM on Fri Oct 31 2008 I was approached early on to be the 1st CMO at Tesla. I knew Martin at Rocket eBook and thought his timing was brilliant (in both cases actually). However, private car companies in the past 75 years have NEVER succeeded. And Tesla's approach as the un-car company (i.e. no Detroit personnel) seemed foolhardy. Who's gonna fix it when it breaks, I asked. So I think Elon can probably empathize, now, with Delorean, and I hope he doesn't find himself in a hotel room looking to fund the next round with blow.
DB I was approached early on to be the 1st CMO at Tesla. I... 1 reply by imag
imag
12:51 PM on Fri Oct 31 2008
@DB: The problem is Elon's approach to innovation. Innovation means looking carefully at where preceeding approaches have failed, and trying to improve on them. It usually doesn't mean pretending that the same rules don't apply to you (although, in the lone case of PayPal, they didn't, because of the internet).
I think it's a case of people assuming that intelligence can replace wisdom. In the end, experience does matter; history repeats itself; rules can be carefully changed only if you knew what they were to start out with.
On that note, whatever one can say about enthusiasm in their products, Toyota is actually a very wise company, which is why they are successful. I would say they emphasize wisdom over raw intelligence, and it has worked very well, especially when, as a physical product company, there are so many major capital risks to take into account.
imag @ DB : The problem is Elon's approach to innovation....
11:01 AM on Fri Oct 31 2008
2 replies mariospants
11:01 AM on Fri Oct 31 2008
Nice one, DB I was seeing shades of Delorean, there too.
Like many, I'm hoping this company and its products succeeds but I'm also curious as to why it is costing so much money to sell what's basically a modified car. And why is it that lately when Silicon Valley throws a shit-ton of money at a project it ends up failing? "Lean and mean" should have been their mantra.
Fuck, for pennies to Tesla's dollar, Armadillo Aerospace is making re-usable space vehicles.
N. Tesla would be ashamed to have his name associated with such a disaster.
mariospants Nice one, DB I was seeing shades of Delorean, there too.... 2 replies by DrewFinch, Sanfam
DrewFinch
11:24 AM on Fri Oct 31 2008 @mariospants: Nikola died penniless, deep in debt, and never realized many of his grand visions. Seems like a good fit.
DrewFinch @ mariospants : Nikola died penniless, deep in debt, and... Sanfam
8:08 PM on Fri Oct 31 2008 @DrewFinch: And not for lack of ability, either. Tesla's lack of business know-how consistently set him back as he was consistently taken advantage of by others.
Yep, perfect fit.
Sanfam @ DrewFinch : And not for lack of ability, either....
11:14 AM on Fri Oct 31 2008
DB
11:14 AM on Fri Oct 31 2008 I don't think it's trivial to replace an internal combustion engine with an electric one. Plus, Elon wanted to futz with the height of the rocker panels. Apparently, it took a contortionist to get in and out of the car. Still, why pay $60K for car futures? It's a lousy bet. Just remember all those people lined up for $600 iPhones? You could have bought all you wanted a week later. If you could get an activation.
DB I don't think it's trivial to replace an internal...
11:24 AM on Fri Oct 31 2008
1 reply Covebum
11:24 AM on Fri Oct 31 2008
It's apparently a highly modified Elise, with bespoke Tesla parts replacing much of the stock Lots ones. While this looks exciting on paper and allows them to brag about how it "isn't really an Elise," one wonders why they didn't just stick to the basics for the first generation. Even better, offer a base model with mostly stock panels, etc. (besides the electric mods of course), and then roll out premium option packages for the custom fab lightweight panels and such. The 'old line' makers have been doing this for decades.
Covebum It's apparently a highly modified Elise, with bespoke... 1 reply by Shapeshifter
Shapeshifter
4:31 AM on Sat Nov 1 2008 @Covebum:
From what i understand it's actually its own chassis, just based on an Elise design. Lotus makes them and then ships them off to Tesla.
Shapeshifter @ Covebum : From what i understand it's actually its...
11:55 AM on Fri Oct 31 2008
BroderickJalople
11:55 AM on Fri Oct 31 2008 Perhaps related, could they possibly have picked a more expensive area to manufacture cars than SJ, California? Manufacturing is and has been *leaving* the SV area for years, everything is WAY too expensive here.
BroderickJalople Perhaps related, could they possibly have picked a more...
11:56 AM on Fri Oct 31 2008
DB
11:56 AM on Fri Oct 31 2008 I believe what you're suggesting, Covebum, was the plan. It was supposed to be a stock chassis and Elise body, with Tesla drive train and battery source. That was the plan, anyway. I understand that before the battery and other Tesla component problems that led to Eberhard's termination surfaced, Elon wanted a more customized look & feel. Only, it ain't software, baby!
Once you move away from stock and you get into engineering retrofits, it's a nightmare.
DB I believe what you're suggesting, Covebum, was the plan....
12:53 PM on Fri Oct 31 2008
jmarcafella
12:53 PM on Fri Oct 31 2008 Interesting post Owen, but the working capital misappropriation conspiracy is off base. Operating companies need funds for payroll, variable equipment purchases, etc. If depositors agreed to funding working capital, then using the cash for general business function seems kosher.
jmarcafella Interesting post Owen, but the working capital...
6:11 PM on Fri Oct 31 2008
Moonshine Mike
6:11 PM on Fri Oct 31 2008 I thought I was the one who was claiming Tesla was a 'suitcase full of coke and a hot wife from being the next Deloran'?
Moonshine Mike I thought I was the one who was claiming Tesla was a...
10:43 AM on Sat Nov 1 2008
KendallSilanus
10:43 AM on Sat Nov 1 2008 Crepitance. The difference here is DeLorean was not a billionaire who could and does do things like, oh, privately fund his own SPACE PROGRAM. Get real folks. Bottom line: if we went ballistic every time a company was down to a few months cash in the bank no start-up in SV would ever go anywhere. Also, as to the whole 'it's an elise on electricity' thing the Roadster and the Elise have about 9% part count in common, and it's mostly things like windshield wipers and knobs -- interior trim type stuff. You can't just drop a 900 pound battery in an Elise chassis and have it perform right, the engineering isn't that simple. Anyone who thinks you can plop a thousand pounds of battery and electronics in an Elise and hit those performance numbers needs to stop hitting their private crack stash extra hard. Lotus' flexible vehicle architecture lets them build rolling chassis much cheaper on a custom basis than other frame technologies. Tesla was given a tax advantage package that made it attractive to start their first plant locally. How far up the scale that will make sense only time (years not months) will tell. Bottom line: much ado about nothing. And the reservation agreement DOES say they can use the cash, folks. That's true of most first-run car lines.
KendallSilanus Crepitance. The difference here is DeLorean was not a...
12:27 PM on Mon Nov 3 2008
ShakeelaNaslund
12:27 PM on Mon Nov 3 2008 Oh my....Elon was my college classmate. Heard he was doing well but hope him well. He's a nice guy. hero
ShakeelaNaslund Oh my....Elon was my college classmate. Heard he was...
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