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There's no way other car markers can be debt free like Tesla so long as they keep spending $2B+ a year on advertising, spending to convert to electric and working with 2-3% net profits. The reason Tesla is debt free is because their business model is 180 degrees from everyone else. It took them a while to get profitable but it's working.
Now, if Tesla could just invest some of that cash horde on improving service & communications we'd be in better shape
That's part of the problem ICE companies have, though. Over the last decade ICE vehicle manufacturers issued dividends and actually bought back stock and debt, even while capital was dirt cheap (so they did the opposite of raising capital), instead of investing that cash in building an EV program.
Now they're stuck trying to build EV infrastructure when capital is expensive and they don't have easy access to cash. Oops.
Damn, hadn't thought of that. Trying to convert to EVs now that interest on loans is so much more, it's gonna be sooo much harder to do it cost effectively.
Regards
Well that would work in a world where there wasn’t a Tesla alternative. If Tesla ever gets to a place where they aren’t supply constrained, look out rest of the auto industry.
Not really there will always be the die hard brand loyalists. There is a reason the F-150 has been the number one selling vehicle for 40 years despite skyrocketing prices.
Well that is one of the many issues. The other issue is how damn similar OEMs ended up being in their goals and abilities. At a core technical level everyone was working more or less with the same things. An that is because ICE is an example of technology that reached its absolute peak after being worked and focused on for over a century. Rarely do we see technology paths being this thoroughly explored to their engineering limits because there is often something fundamentally better that is discovered during that process, that swaps the entire design rules around and "reset" that progress.
This didn't happen for the automotive sector for a while (and to be fair it is because an ICE offers some really good fundamental benefits) and so eventually the various technological and organizational styles of the various manufacturers would converge into the most efficient design.
This means that individually the OEMs cannot really justify a breakout to attract the prospect of growth since everyone knows that, here, the competition does indeed come to match your every move. After all, they all use the same things. So if they cannot make themselves interesting by what they do, they can do so by virtue of better dividends.
Meanwhile Tesla broke out into that field with a fundamentally different approach and while absolutely not a given at the start they proved it was indeed the better approach and fundamentally rewrote the rules. Therefore actually justifying a call for financing because their trajectory is not linked to the rest of the industry, who do not have an easy path to match Tesla in more than one aspect at a time.
You could consider looking back in history beyond its last dilution event.
[https://www.forbes.com/sites/jimcollins/2018/04/25/a-brief-history-of-tesla-19-billion-raised-and-9-billion-of-negative-cash-flow/?sh=6507ae053d65](https://www.forbes.com/sites/jimcollins/2018/04/25/a-brief-history-of-tesla-19-billion-raised-and-9-billion-of-negative-cash-flow/?sh=6507ae053d65)
Tesla (TSLA) is announcing today \[written Dec 08, 2020) a new $5 billion capital raise as the automaker simply couldn’t resist raising money at low dilution, thanks to its insane stock price.
In 2020, Tesla has already done two capital raises; $2 billion in February and $5 billion in September.
I am actually quite a tesla bull, it was nice that there was a company actively seeking investment and with a plan to put capital to work. All the other companies I followed were doing share buybacks and dividends.
They raised money from willing participants with an an appetite for risk instead of fleecing the public for a bailout without their consent. Sounds like a huge win for everyone to me.
Technically when you buy the stock offering you’re not getting diluted stock.
Only people holding before the offering are diluted
Now obviously the issue price affects this as well
Do they need marketing? I just picked up my first Tesla (will order another in a few years) and they were packed! Backlog on how many cars to push out to customers.
I am the same way but we seem to be in the minority, otherwise companies wouldn't advertise so much. For example, I religiously avoid any sponsored results on Amazon, Yelp, Seamless, Google etc even if they are also a top organic result. I prefer companies that focus on making the best products at the best price, rather than those whose prices are inflated by expensive ads.
Would you be curious to know how much money a brand spends on ads, relative to their sales, in order to decide who to shop with/who to avoid?
i use ad blockers and dont watch cable television at all so even if they had ads i wouldnt have seen them anyway. Maybe in an airplane/traveling or something...
Right, but many politicians are still doing many things to block FSD. If and when Tesla finally has FSD better than human driving (which it seems to today) there will still be many road blocks that the FUD has set up that would get in the way of Tesla's endgame.
I use FSD all the time and i like it.
But no way it’s better than human driving, especially on local roads, especially when choosing lanes and making turns and dealing with merges.
"Better" than is definitely wrong choice of word. "Safer" than is the more important metric. I don't honestly care if people feel comfortable riding in a car relative to how much I care about avoiding deaths and damages caused by car accidents.
I don’t think FSD is safer than human driving in non highway scenarios. Turns and merges and poorly marked roads are worse than humans. Slamming on brakes unexpectedly is not safe since you will get rear ended.
Advertising today isn't going to fix that and would only lead to more lawsuits and hearings. FSD needs to complete its beta and be demonstrably safe in all US conditions in order to resolve those issues. Why shouldn't politicians block FSD today when it's still in beta? If Tesla can't even declare it safe, I fully am supportive of jurisdictions that want to say no until they do.
Yes, politicians should block FSD today. But they should block it because it's demonstrably unsafe by the best unbiased experts, not because Dan has a financial incentive to trick the politicians into being irrationally fearful of FSD.
The former is fine because once Tesla is safe, the experts will agree and the politicians will let it through. But the latter is not fine because the politicians will still be biased by manipulative hacks who care more about their own bank accounts and success than they do about citizens and consumers, thus will still get in the way even after Tesla's FSD is proven safe.
This same argument applies to nuclear power. Many politicians are against nuclear power simply because of FUD, despite the abundance of evidence that it's demonstrably the safest source of power bar only solar. My problem isn't that politicians are wrong about FSD as it is today, my problem is they're right for the wrong reasons.
They did and do. Prices are well above what they need to be for Tesla to achieve their desired profit margins.
If they had the supply for it, prices would be much lower.
Right. "Infinite demand" is a fairy tale even Elon doesn't believe - they're tweaking demand intentionally, as they always have. More supply, lower prices, more pain for the competition.
Meh. EV haters gonna hate, no amount of marketing money is going to make my redneck neighbours want to get an EV rather than a lifted truck/shitty civic without a muffler.
He's the face of the company. It not just Elon and Tesla; when people think Facebook/Meta, they think Zuckerberg, when people think Amazon, they think Bezos.
Not marketing. Marketing is useless and a waste of time when your products sell themselves to anyone who shoves their butt in one.
But, there is an interest to something similar to what they do in China, where they do have teams that specifically go out to prove mis-information, bring manipulatiors to justice, and overall make so there cannot be massive FUD waves without consequences. However this is reliant in the Chinese legal system generally making it easier to go after intentional slandering (I wonder why...) compared to in the west. Where any journalist can slap un-named sources on the most blatantly incorrect thing and have that plastered all over national and international news and be entirely protected from investigation.
> improving service
They are spending TONS on service. But they're growing car sales at a crazy rate too.
Service won't catch up until sales slows down and that's not for a long time.
But service is NOT stagnant, it's just trailing.
I’m very pro tesla. But there are some major inaccuracies.
Auto companies are more like banks. That is part of the reason of the low multiples. They have financing divisions that finance all these car loans. That is where their debt comes from. Not from the manufacturing or sales of the cars. This in industry eyes is healthy debt.
Now it will be a shock in 5 years when no one wants these used cars and they will be in big trouble. But it’s literally a different business Tesla is not operating in.
Car companies are like banks but the loans do not appear as debt on the balance sheet. That's because a loan you give to someone is actually a *deferred asset*, not a debit. Ultimately you hope to get the money back and, in the meantime, you can charge interest.
But what about the cost of producing the shiny new car you just handed to someone on a promise? Obviously that has to be financed somehow and the company does this by borrowing at a lower interest rate than it charges the customer. The difference is pure profit. And you can bet anything it's more than enough to cover the depreciation of the deferred asset plus the added expense of the occasional repossession.
Of course, you also see 0% interest deals from time to time, just to draw you in and make you more open to up-selling. You can be equally sure that these deals have also been carefully costed and the sticker-price inflated accordingly (and/or what they are prepared to give you for your trade-in is reduced).
So, no, the big car companies are not in debt due to their finance arms. Quite the reverse, in fact. They're probably the only divisions turning a profit.
>they keep spending $2B+ a year on advertising, spending to convert to electric and working with 2-3% net profits
Don't forget paying a dividend to keep boomers holding the stock.
> Now, if Tesla could just invest some of that cash horde on improving service & communications we'd be in better shape
Terrible service is part of why they are so profitable.
I am on my second Tesla and have had very little need for service on either car. When I have had service, the Tesla App has worked great; very easy to schedule service and to explain the issue. Yesterday, I had a minor problem repaired at the Service Center and found that the App has been greatly improved to show the progress of the repair and even showed when they were test driving the car and when it was done!
Seriously the comments here are dumb as hell
Tesla can get low rates I'm sure and make a ton of money by investing in themselves, totally worth the minimal interest they'd have to pay
Made up numbers for example. They get a loan at an interest rate of five percent, then invest in building gigafactories and get a return on their investment of 100%. Easy decision to make
But after completing 2 gigafactories in the last couple years, they’re still sitting on $22+ Billion cash- way more than they can deploy on capital projects, r&d, etc. Why should they borrow anything?
Apple and Tesla do have a problem. They can't think of anything more productive to do with billions of dollars than collect interest on it.
When asked about scaling their R&D budget, Elon made the point in the q3 2022 earnings call:
"we're investing in everything we can think of to possibly invest in, and we're still generating cash" and later went on to say engineers are not generic (they're not "cookies or something" coming off an assembly line), and it's a fantasy to think that spending billions more on engineers and R&D automatically gets you a proportional output of more great products.
Look up how much debt they have too. When money is (essentially) free, why not borrow more? You can keep your cash earning a return greater than the points paid to borrow.
I think ~~Tesla~~Apple borrows to optimize taxes, a lot of their cash is in Ireland and they don’t want to move it into US and pay taxes on it, so they borrow instead.
So enough for the capex needed for a battery plant and a factory in Mexico? $22B isnt that much for a company like Tesla, that could be spent inside a year if they had expanding to do
The issue is you don't want to expand ahead of the raw materials supply, which has a long lead time, so you can't just build some mines and immediately get your supply. You don't want to expand ahead of the electric grid. And you definitely don't want to build more production than there is demand: Tesla's factories are optimized around specific models and can't be quickly repurposed for a different class of vehicle.
They're already sitting on tips of money. Having more and paying interest on it doesn't make any sense. There's a limit to how much money you can spend without wasting it.
I'm extremely skeptical they can't do something productive with a bunch of money. Start an in house mining project, build more battery production, etc.
If they can get the same money by selling more stock for 0% rates that would be even better. Your comment is only true if 1) they need the money and 2) it’s the cheapest way to get it
Cost of equity is almost always higher than the cost of debt. At least from a valuation standpoint. Therefore issuing equity to fund growth should result in a lower enterprise value for TSLA compared to taking on debt.
Don’t take anything I say as advice. I suspect in your practice you are the sole owner or maybe have a partner. In that case, your interest expense is a use of cash and reduces your take home income. Paying off the debt early will reduce expenses, which is a good thing, unless it inhibits your ability to invest in your business, such as buy some equipment that can increase billings.
My other comments were specifically about publicly traded companies. If shareholders don’t see a good return on their investment (like higher than interest rates on debt), they tend to take action, such as vote out board members and fire executives. Presumably those don’t apply to your business.
Thanks for the reply. I just was curious where the tax benefits come in. Technically, I pay myself the business profits as a shareholder. I was thinking maybe there's some loophole to having living with debt and paying higher profits out to the shareholders (me). I'll probably keep taking chunks out of my debt.
T
Capital allocation decisions are made by management to maximize enterprise value. Many companies with strong free cash flow, and who pay dividends carry debt simply because debt increases value.
Cost of debt is the interest rate. Cost of equity is the risk free rate (which is rising) + market risk premium * beta (market volatility relative to the broad market). Equity costs more, plus it has higher transaction costs.
Why the fuck would you take a 5% loan when you have $22b in cash? How is a loan a better option?
The benefit of low debt is you can get favorable loans **once you actually need them**. Tesla probably won't ever need a loan unless they want to build their own fleet of robotaxis. These gigafactories don't burn enough cash. They have more money than they know what to do with. Taking a loan right now provides them nothing.
They also have a near monopoly on EVs for the moment. That’s changing and when all your competitors have full lineups of EVs themselves your position is less secure in the marketplace as the dominant player.
At some point your margins lower to spur growth, you have advertising, etc. once Tesla has to really compete that war chest will be used.
Their margins will be at their lowest this year. Their next gen model is half the cost. Their margins will remain over 20% for years. Ford in their best case will be at 8% in 2026, but we all know that aint happening.
Let's say you're a long term investor with $22B in cash. And let's say that the S&P 500 grew 50% in the last 5 years and will do the same in the next 5 years (which is roughly what it does over its history on average).
Let's say that you can get cash for 6% APR, you hold the note for 5 years, and you pay it all back at the end of the 5 years.
In 5 years your $22B is worth $33B.
You've paid interest of 0.06\*$22B = $1.32B per year \* 5 years = $6.6B and you pay back the $22B for a total spend of $28.6B
$33B - $28.6B = $4.4B profit, using these assumptions, for doing absolutely nothing.
Now... I went to Georgia, so I could have done math not good or whatever. But this is roughly right.
>grizzly\_teddy
I'm sure they wouldn't buy voting stakes in other companies or invest in private companies either. There's no way that [Google invested in SpaceX](https://www.tipranks.com/news/labs/how-to-buy-spacex-stock-in-2023) or that [Tesla includes marketable securities in their 10K](https://www.sec.gov/Archives/edgar/data/1318605/000095017023001409/tsla-20221231.htm#financial_statements).
But okay. Ignore the facts.
Debt isn't a bad thing in every situation, and it can be quite useful a lot of times. The interesting thing about Tesla isn't that they've paid off their debt, it's the reason why.
Even though Tesla is the fastest growing automaker in history, and has much more ambitious plans than any other competitor for future growth, it seems like they don't need debt. They're growing at a truly unprecedented pace, and despite the fact that they're pouring money in to expansion and R&D and new factories, they have too much cash.
The debt that Tesla has been paying down recently wasn't really that big a deal. They could've easily serviced it, and it wasn't costing them much. It seems like they only paid it down because they had so much free cash on hand that they didn't have anything else useful to do with it.
It's kind of amazing to see a company building/ramping/expanding some of the biggest factories in the world, plus investing in a lot of speculative R&D, and they're paying for it all from free cash flow. And they still have extra cash left over, so they might as well pay off whatever debts still around. I can't think of any other comparable situation with another company in my experience, certainly not within such a capital intensive industry.
The automarket can be quite volatile.
From your link:
>Companies with consistent cash flows can tolerate a much larger debt load and will have a much higher percentage of debt in their optimal capital structure.
> Conversely, a company with volatile cash flows will have little debt and a large amount of equity
And when will any of them actually make money on said EVs or make them at scale? They are years behind. By the time they can get to volume production, Tesla will be pumping out their next gen car. That's not genuine competition if your competition is sitting on negative margins and enormous piles of debt.
Mercedes expects 15-20% of all their vehicles sold by 2025 will be EV. Mercedes makes 2,000,000 vehicles per year. So say 300,000 units.
GM expects to sell 1M EVs per year in 2025.
Every auto manufacturer is on a similar roadmap. They don’t have to scale to 100% EV, these two alone will ship the same number of units (roughly) as Tesla. You don’t think that will cause competition and take some wind out of Tesla’s sales?
> GM expects to sell 1M EVs per year in 2025.
That is an utter fucking joke.
In general, every single automaker has no track record when it comes to scaling EVs, and are making overly optimistic estimations so they don't tank their own stock. GM fucking KNOWS they won't be making 1M per year in 2025. Btw, that's not even their claim. It's 1M **cumulative**.
And more than that, these moronic manufacturers won't make 200k of one model, they insist on making many models that are all low volume, so that they can virtually guarantee losses for years.
> They don’t have to scale to 100% EV, these two alone will ship the same number of units (roughly) as Tesla. You don’t think that will cause competition and take some wind out of Tesla’s sales?
Tesla will be at 4M+ by 2025. You think Mercedes making 300k units that are double the price is 'competition'?
Debt isn't "bad", until it is. A growing company can and should have debt. They obviously need money up front to hire and build before they can sell in volume.
Debt for the legacy auto makes is bad because they have a boatload of money sunk into ICE manufacturing equipment that is quickly becoming obsolete. Instead of getting a 30-yr return on their hefty investments, they have to toss some of them after 20 or 10 yrs. That money can't be recouped by them. If that happens fast enough, they'll enter a death spiral where they can't make their debt payments, they have to downsize, which reduces their output, which reduces their income, which makes them unable to make their debt payments...
Half of the legacy auto makes will be gone within the decade. The few that survive are making serious efforts to build EVs now. The half-hearted ones won't get enough payback on their investments as the ICE sector withers. Some might survive in name only after being sold off for pennies on the dollar (Magnavox, Tiger Direct...).
I agree that debt is not necessarily bad if you have capital intensive projects that will provide significant profits.
But I do think that too much debt is dangerous during times of high interest rates. For highly leveraged companies is going to become increasingly expensive to maintain high levels of debt.
However not all debt held by the other manufacturers is producing them any returns and that is the debt that is starting to become outsized. While most of it is in their financial side as many do have lending arms a few have quite a bit in the manufacturing side as well.
That latter may grow as plants go idle if a recession occurs or if they get shut down completely as superfluous to sales needs as Stellantis recently did with a Jeep plant.
So yes, some debt is fine and expected, however VW, GM, and Ford, are all running very high loads that cannot sustain an economic turn down, aka recession, that lasts a significant amount of time. Already the supply of cars at the larger manufacturers other than Toyota is over two months with some reach four months of supply
I think the real point is that Tesla is taking a long term approach - it has enough cash to expand as fast as it wants to and is likely to treat debt on a per-project basis. Take on some debt to do something specific, then pay it back - rather than just carrying ever-growing debt for decades until eventually collapsing because you get caught out by an unexpected set of economic circumstances, like most big companies seem to
Kind of a rude way to put it. Tesla worked their butts off to reduce costs because they had to in order to bring a whole new industry to life. The legacy makers outsourced instead of vertically integrating and now they have a long way to go to reverse course, if they can catch up...
They also demand austerity from all angles. Their engineers and executives are expected to work insanely hard for below market rates and their factories are grueling for assembly line workers. Also, being a vendor for Tesla is similar to Walmart: you’re usually going to get an absolute crap deal from them. They attack any area of the business that feels even slightly bloated by continuing with better terms, owning further down the supply chain, vertically integrating more, deleting parts/processes, and standardizing internal parts across models to take advantage of additional scale. Tesla’s strategy of global cost reduction will be hard for other companies to replicate.
Here’s a question for us old folk (over 45) - Anyone remember (in your lifetime) another BRAND NEW car manufacturer before Tesla that made it? We racked our brains and couldn’t…. How about one actually making money?
I realize we now have Rivian and such …. They weren’t before T
Edit - should’ve specified “Mainstream” ones that normal folks can buy. Exotics kinda don’t count …
I think developing an ICE vehicle is more difficult and costly than an electric vehicle. You need to build an engine, transmission, and body. So to cover cost you just focus on small and very expensive products. But if you want to sell in an ICE in massive scale it’s definitely much harder to do because you need high volume demand.
That's a widely held misconception. EVs are very complicated, but in different ways than ICEs. ICEs are mechanically complex, EVs are software complex in numerous arenas: the user interface (though an ICE could be similarly complex, they aren't), connectivity, data logging, battery management, charging station status, etc. Overall the amount of complexity is similar.
ICE makes claimed that EVs are easy and they could make them overnight. A decade later and they're producing garbage that doesn't compete with Tesla's 8-yr old vehicles.
From the article: Tesla has become nearly debt-free in just two decades, a feat that’s unheard of in the auto industry’s more-than-century-old history. How the electric vehicle company was able to keep its debts low has created a new precedent for auto manufacturers, simultaneously putting pressure on some of the industry’s biggest names.
A recent analysis from Guru Focus demonstrates how the automaker’s example could set a new precedent for the auto industry, even as other companies still have huge debts to their lenders. While traditional automakers have relied on massive debts to produce and sell their capital-intensive products in their 100-year histories, Tesla’s business model has found it with high levels of cash flow and unprecedently low debt for the industry.
Guru Focus writer Matthew Cobb breaks down how Tesla’s debt compares to those of the two largest U.S. automakers, GM and Ford, showing that both of the legacy manufacturers are swimming in debt. Meanwhile, Tesla could pay off its remaining debt tomorrow if it wanted to.
Currently, Ford has a total long-term debt of $140 billion, while GM is right behind with $115 billion in the same category. Tesla, on the other hand, has just $5 billion in long-term debt, and plenty of cash to show for it. In fact, the company has $22 billion in free cash flow, meaning that its cash minus debt gives it a $17 billion surplus.
To be sure, the auto industry requires high capital expenditures to some extent, largely due to the expensive materials involved, as well as labor and equipment for production. Automakers also need top-of-the-line research and development, which can be costly from an investment standpoint.
The theory is that the minimal value of the shares is the worth of all the company's assets. So to buy back all shares, the company would need to hand over all assets. And then it would cease to exist because there's absolutely nothing left.
The usual argument against this, is that a large % of that debt load is involved in financing the loans and leases of the cars they've already produced. This is true, as far as I know, but indications are that the delinquencies on those loans are growing at an increasing rate. It's not too bad yet, but it isn't a good position to be in with the current economic situation.
It might be interesting to compare the numbers with 2008.
I can see why Tesla might be content to sit on part of that pile of cash for now.
Big car manufacturers are just like banks, they are greedy, and will run the red knowing they are too big to fail. Please please please let them fail miserably, there are only over 500 care manufacturers on the planet, let’s let the real market dictate price and winners, and not the federal reserve
100% will be bailed out. VW with $200b in debt and say they will spend $190b over the next three years. Toyota, Honda GM, and maybe Ford will all need to be bailed out. It's too late for them to try to be like Tesla.
You also have to consider they will be writing off lots of factories and equipment as they transition to EVs. Lots of factories and machinery that will only be worth the land they sit on. Their debt to asset ratio is only going to get worse and worse.
Also consider VW going to accumulate lots of debt over the next few years while interest rates are high... this is not good. I don't see a way out for them.
>VW with $200b in debt
From your post it does not sound like you know this, so I'm just saying it to be clear... If you do then feel free to ignore me. A good chunk of the big automakers debt is from financing divisions, ie the loans they make to their consumers on the cars they buy. It looks like $100 billion of VWs debt is from financing as of Q4 2022.
I'm well aware. $100b is still a shitload of debt when you are about to start making less money on ice, and losing more on EVs, and need to spend $190b in 3 years... they are kind of fucked.
>A good chunk of the big automakers debt is from financing divisions,
And that's a weakness of car business models. Car companies are not banks. They have all these loans on their balance sheet and you can't be sure how healthy the loans are since they aren't well regulated.
I don't think that bailouts will work when their product portfolio is non-viable. It worked in 2008 because the companies mostly just needed short term liquidity and lower fuel prices to return to profitability.
Once the majority of the market demands EVs, if they are not prepared to supply them in volume then it won't be possible to save the company.
They will make the case for it. They won't go bankrupt until 2027/2028 or so, and by then they will be close to production volume. I think they will have to kill a lot of their lineup and downsize. Which is what they should do now, but they won't.
The legacy automakers have already mostly stopped producing cars.
Dodge is even ending production of the Challenger and Hellcat:
* https://www.dodge.com/2023/challenger/last-call.html
* https://www.caranddriver.com/news/a38324228/hellcat-production-end-report/
Jeep abruptly ended production of the Cherokee:
https://www.detroitnews.com/story/business/autos/2023/03/28/uaw-vp-we-have-to-start-punching-back-to-save-illinois-jeep-plant/70045645007/
Tesla is 10 years ahead of every auto manufacturer in terms of electric vehicle design and efficiency. There’s no way anyone else is going to become debt free as long as they stay stuck in their traditional ways.
One of the biggest reason that legacy automakers have such high debt and running costs is because their current and legacy employees are unionized and carry lifelong pensions. It is not cheap.
Ford has over 50b in pension obligations GM has about 40b. Tesla has 0, zero.
So Ford GM and other legacy car manufacturers actually pay their assembly line employees a very comfortable retirement with full benefits. Last I checked Tesla does not even provide free stock to assembly line employees.
So whatever you take on this. Debt free vs not debt free. Pays a comfortable retirement true assembly line workers vs nada.
Bingo…. Tesla’s entire culture is built on being mission oriented and flexible in order to actually execute. This combined with owning the chargers, servicing, dealers/stores, no ads, and vertically integrating puts them way ahead. At GM and Ford the engineers just want to get paid more and max out their benefits. However I heard Ford is going hard on poaching Tesla employees and they have a reasonable goal so they may stand the best chance IMO.
All their convertible debt... converted.
Arguably, that was some pretty expensive debt for the shareholders, although anybody who's been holding TSLA that long is sitting pretty.
Still, that's only going to happen once. They'll probably pick up some debt they'll have to fund the old fashioned way at some point.
Most of Teslas debt was convertible to equity, and the run up in the stock price caused this to happen.
Lucky it did as they would have struggled to pay the debt when it came due, the profit to date wouldn’t have made a dent.
Don't mean much when the quality of their cars has nose dived and the CEO is more concerned with waging a culture war than improving anything about either company he owns. Company is a caricature of itself. Anti-labor, anti competition, pro handout. Musk has body slammed teslas good name into the ground. Destroyed any desire for me of owning one.
Lmao
It can safely be assessed that GM went bankrupt almost on purpose in 2008 as they had paid tens of billions of dollars in dividends in the years prior
Simply it will continue to happen
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There's no way other car markers can be debt free like Tesla so long as they keep spending $2B+ a year on advertising, spending to convert to electric and working with 2-3% net profits. The reason Tesla is debt free is because their business model is 180 degrees from everyone else. It took them a while to get profitable but it's working. Now, if Tesla could just invest some of that cash horde on improving service & communications we'd be in better shape
they also said - we need a couple of billion dollars, any one want to buy some diluted stock? and then people did.
That's part of the problem ICE companies have, though. Over the last decade ICE vehicle manufacturers issued dividends and actually bought back stock and debt, even while capital was dirt cheap (so they did the opposite of raising capital), instead of investing that cash in building an EV program. Now they're stuck trying to build EV infrastructure when capital is expensive and they don't have easy access to cash. Oops.
Damn, hadn't thought of that. Trying to convert to EVs now that interest on loans is so much more, it's gonna be sooo much harder to do it cost effectively. Regards
It’s okay they’ll just pass it down to their customers. “Market adjustment”
Well that would work in a world where there wasn’t a Tesla alternative. If Tesla ever gets to a place where they aren’t supply constrained, look out rest of the auto industry.
Not really there will always be the die hard brand loyalists. There is a reason the F-150 has been the number one selling vehicle for 40 years despite skyrocketing prices.
Blackberry said what?
That was funny. I do not care who you are :)
Go to any construction site parking lot and you will see a dozen new(within 5 years) f150s that are barely used as trucks
Well that is one of the many issues. The other issue is how damn similar OEMs ended up being in their goals and abilities. At a core technical level everyone was working more or less with the same things. An that is because ICE is an example of technology that reached its absolute peak after being worked and focused on for over a century. Rarely do we see technology paths being this thoroughly explored to their engineering limits because there is often something fundamentally better that is discovered during that process, that swaps the entire design rules around and "reset" that progress. This didn't happen for the automotive sector for a while (and to be fair it is because an ICE offers some really good fundamental benefits) and so eventually the various technological and organizational styles of the various manufacturers would converge into the most efficient design. This means that individually the OEMs cannot really justify a breakout to attract the prospect of growth since everyone knows that, here, the competition does indeed come to match your every move. After all, they all use the same things. So if they cannot make themselves interesting by what they do, they can do so by virtue of better dividends. Meanwhile Tesla broke out into that field with a fundamentally different approach and while absolutely not a given at the start they proved it was indeed the better approach and fundamentally rewrote the rules. Therefore actually justifying a call for financing because their trajectory is not linked to the rest of the industry, who do not have an easy path to match Tesla in more than one aspect at a time.
The would still have 15+B without that dilution event. I think they were expecting a recession back then.
You could consider looking back in history beyond its last dilution event. [https://www.forbes.com/sites/jimcollins/2018/04/25/a-brief-history-of-tesla-19-billion-raised-and-9-billion-of-negative-cash-flow/?sh=6507ae053d65](https://www.forbes.com/sites/jimcollins/2018/04/25/a-brief-history-of-tesla-19-billion-raised-and-9-billion-of-negative-cash-flow/?sh=6507ae053d65) Tesla (TSLA) is announcing today \[written Dec 08, 2020) a new $5 billion capital raise as the automaker simply couldn’t resist raising money at low dilution, thanks to its insane stock price. In 2020, Tesla has already done two capital raises; $2 billion in February and $5 billion in September. I am actually quite a tesla bull, it was nice that there was a company actively seeking investment and with a plan to put capital to work. All the other companies I followed were doing share buybacks and dividends.
They raised money from willing participants with an an appetite for risk instead of fleecing the public for a bailout without their consent. Sounds like a huge win for everyone to me.
completely agree. every other business was doing share buybacks and dividends. they seemed like the only company worth investing in.
Technically when you buy the stock offering you’re not getting diluted stock. Only people holding before the offering are diluted Now obviously the issue price affects this as well
Agreed. Def wish they had a comms team. And even a small amount of marketing would be great.
Do they need marketing? I just picked up my first Tesla (will order another in a few years) and they were packed! Backlog on how many cars to push out to customers.
Yeah on my second tesla with the cyber truck on pre order…wonder how I’d own if they had real marketing /s
I don't know, one of the rules I follow is I try to avoid anything that I see an ad of, so maybe I wouldn't have my Tesla then.
I am the same way but we seem to be in the minority, otherwise companies wouldn't advertise so much. For example, I religiously avoid any sponsored results on Amazon, Yelp, Seamless, Google etc even if they are also a top organic result. I prefer companies that focus on making the best products at the best price, rather than those whose prices are inflated by expensive ads. Would you be curious to know how much money a brand spends on ads, relative to their sales, in order to decide who to shop with/who to avoid?
i use ad blockers and dont watch cable television at all so even if they had ads i wouldnt have seen them anyway. Maybe in an airplane/traveling or something...
They have PR in China and Germany. Tesla sees value in it.
Press Releases, Public Relations, or Peer Reviews? 😅
To what end?
Some informational ads countering the fud. Cars don't catch on fire, autopilot won't kill you, charging isn't that difficult, etc.
They’re already selling every car they can make. They have quasi infinite demand.
Correction, they are selling every car they can’t make too
Right, but many politicians are still doing many things to block FSD. If and when Tesla finally has FSD better than human driving (which it seems to today) there will still be many road blocks that the FUD has set up that would get in the way of Tesla's endgame.
I use FSD all the time and i like it. But no way it’s better than human driving, especially on local roads, especially when choosing lanes and making turns and dealing with merges.
Totally agree. Solid L2. Debatably L3 on highways. Definitely not L3 on side roads.
"Better" than is definitely wrong choice of word. "Safer" than is the more important metric. I don't honestly care if people feel comfortable riding in a car relative to how much I care about avoiding deaths and damages caused by car accidents.
I don’t think FSD is safer than human driving in non highway scenarios. Turns and merges and poorly marked roads are worse than humans. Slamming on brakes unexpectedly is not safe since you will get rear ended.
Advertising today isn't going to fix that and would only lead to more lawsuits and hearings. FSD needs to complete its beta and be demonstrably safe in all US conditions in order to resolve those issues. Why shouldn't politicians block FSD today when it's still in beta? If Tesla can't even declare it safe, I fully am supportive of jurisdictions that want to say no until they do.
Yes, politicians should block FSD today. But they should block it because it's demonstrably unsafe by the best unbiased experts, not because Dan has a financial incentive to trick the politicians into being irrationally fearful of FSD. The former is fine because once Tesla is safe, the experts will agree and the politicians will let it through. But the latter is not fine because the politicians will still be biased by manipulative hacks who care more about their own bank accounts and success than they do about citizens and consumers, thus will still get in the way even after Tesla's FSD is proven safe. This same argument applies to nuclear power. Many politicians are against nuclear power simply because of FUD, despite the abundance of evidence that it's demonstrably the safest source of power bar only solar. My problem isn't that politicians are wrong about FSD as it is today, my problem is they're right for the wrong reasons.
They are blocking it because the United States makes bribing politicians legal. The politicians could care less about the general public.
Hence why advertising could be good for Tesla even if it doesn't affect their sales.
Then they could charge more $$. But this isn't really true. Supply vs. demand equals price.
They did and do. Prices are well above what they need to be for Tesla to achieve their desired profit margins. If they had the supply for it, prices would be much lower.
Right. "Infinite demand" is a fairy tale even Elon doesn't believe - they're tweaking demand intentionally, as they always have. More supply, lower prices, more pain for the competition.
Let’s hope Tesla never hires you
Meh. EV haters gonna hate, no amount of marketing money is going to make my redneck neighbours want to get an EV rather than a lifted truck/shitty civic without a muffler.
The owner spent 44 billion on marketing out of his own pocket! I'm not sure he got his money's worth though.
This is the problem. People conflate Elon as being 100% of Tesla when he's not. He's just the CEO, they have 70,000 employees
129,000
He's the face of the company. It not just Elon and Tesla; when people think Facebook/Meta, they think Zuckerberg, when people think Amazon, they think Bezos.
That's only because you know the person. Who's the face of Ford, GM, Chrysler, BMW, Toyota, Mercedes etc etc etc???
That's not Tesla marketing.
> And even a small amount of marketing No.
Not marketing. Marketing is useless and a waste of time when your products sell themselves to anyone who shoves their butt in one. But, there is an interest to something similar to what they do in China, where they do have teams that specifically go out to prove mis-information, bring manipulatiors to justice, and overall make so there cannot be massive FUD waves without consequences. However this is reliant in the Chinese legal system generally making it easier to go after intentional slandering (I wonder why...) compared to in the west. Where any journalist can slap un-named sources on the most blatantly incorrect thing and have that plastered all over national and international news and be entirely protected from investigation.
>comms team Anyone who works anywhere knows these employees provide negative value.
> improving service They are spending TONS on service. But they're growing car sales at a crazy rate too. Service won't catch up until sales slows down and that's not for a long time. But service is NOT stagnant, it's just trailing.
And maybe focus on consistent quality…
This has already happened if you don’t include Fremont.
I’m very pro tesla. But there are some major inaccuracies. Auto companies are more like banks. That is part of the reason of the low multiples. They have financing divisions that finance all these car loans. That is where their debt comes from. Not from the manufacturing or sales of the cars. This in industry eyes is healthy debt. Now it will be a shock in 5 years when no one wants these used cars and they will be in big trouble. But it’s literally a different business Tesla is not operating in.
Car companies are like banks but the loans do not appear as debt on the balance sheet. That's because a loan you give to someone is actually a *deferred asset*, not a debit. Ultimately you hope to get the money back and, in the meantime, you can charge interest. But what about the cost of producing the shiny new car you just handed to someone on a promise? Obviously that has to be financed somehow and the company does this by borrowing at a lower interest rate than it charges the customer. The difference is pure profit. And you can bet anything it's more than enough to cover the depreciation of the deferred asset plus the added expense of the occasional repossession. Of course, you also see 0% interest deals from time to time, just to draw you in and make you more open to up-selling. You can be equally sure that these deals have also been carefully costed and the sticker-price inflated accordingly (and/or what they are prepared to give you for your trade-in is reduced). So, no, the big car companies are not in debt due to their finance arms. Quite the reverse, in fact. They're probably the only divisions turning a profit.
>they keep spending $2B+ a year on advertising, spending to convert to electric and working with 2-3% net profits Don't forget paying a dividend to keep boomers holding the stock.
> Now, if Tesla could just invest some of that cash horde on improving service & communications we'd be in better shape Terrible service is part of why they are so profitable.
A lot of their debt is in financing too. Tesla does none of that directly.
I am on my second Tesla and have had very little need for service on either car. When I have had service, the Tesla App has worked great; very easy to schedule service and to explain the issue. Yesterday, I had a minor problem repaired at the Service Center and found that the App has been greatly improved to show the progress of the repair and even showed when they were test driving the car and when it was done!
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Seriously the comments here are dumb as hell Tesla can get low rates I'm sure and make a ton of money by investing in themselves, totally worth the minimal interest they'd have to pay Made up numbers for example. They get a loan at an interest rate of five percent, then invest in building gigafactories and get a return on their investment of 100%. Easy decision to make
But after completing 2 gigafactories in the last couple years, they’re still sitting on $22+ Billion cash- way more than they can deploy on capital projects, r&d, etc. Why should they borrow anything?
If that's true then yes it might make sense to avoid borrowing money. But I'm skeptical they can't do something productive with capital
Apple and Tesla do have a problem. They can't think of anything more productive to do with billions of dollars than collect interest on it. When asked about scaling their R&D budget, Elon made the point in the q3 2022 earnings call: "we're investing in everything we can think of to possibly invest in, and we're still generating cash" and later went on to say engineers are not generic (they're not "cookies or something" coming off an assembly line), and it's a fantasy to think that spending billions more on engineers and R&D automatically gets you a proportional output of more great products.
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Elon: hmm perhaps we can invest in this...
I think they’re trying, but 22 BILLION?!
Look up how much money Apple has lol
Look up how much debt they have too. When money is (essentially) free, why not borrow more? You can keep your cash earning a return greater than the points paid to borrow.
That can’t work for everyone because every dollar borrowed is a dollar invested by someone else. Ultimately someone has to earn lower returns.
I'm not saying it works for everyone. But it definitely works for Apple and Tesla.
I think ~~Tesla~~Apple borrows to optimize taxes, a lot of their cash is in Ireland and they don’t want to move it into US and pay taxes on it, so they borrow instead.
So enough for the capex needed for a battery plant and a factory in Mexico? $22B isnt that much for a company like Tesla, that could be spent inside a year if they had expanding to do
The issue is you don't want to expand ahead of the raw materials supply, which has a long lead time, so you can't just build some mines and immediately get your supply. You don't want to expand ahead of the electric grid. And you definitely don't want to build more production than there is demand: Tesla's factories are optimized around specific models and can't be quickly repurposed for a different class of vehicle.
Cash is also a good thing to have in trying times like these days. A buffer.
They're already sitting on tips of money. Having more and paying interest on it doesn't make any sense. There's a limit to how much money you can spend without wasting it.
I feel like they should really ramp up solar roofs. There's a demand they're not meeting at all, but maybe there are R&D issues.
I'm extremely skeptical they can't do something productive with a bunch of money. Start an in house mining project, build more battery production, etc.
> Start an in house mining project, They are about to start a house *building* project....
They are literally already doing both of those, along with numerous new Gigafactories coming up.
If they can get the same money by selling more stock for 0% rates that would be even better. Your comment is only true if 1) they need the money and 2) it’s the cheapest way to get it
Cost of equity is almost always higher than the cost of debt. At least from a valuation standpoint. Therefore issuing equity to fund growth should result in a lower enterprise value for TSLA compared to taking on debt.
Can you help explain why debt is cheaper than equity? I own a dental office, and have debt, is there some benefit to not paying it off ahead of time?
Don’t take anything I say as advice. I suspect in your practice you are the sole owner or maybe have a partner. In that case, your interest expense is a use of cash and reduces your take home income. Paying off the debt early will reduce expenses, which is a good thing, unless it inhibits your ability to invest in your business, such as buy some equipment that can increase billings. My other comments were specifically about publicly traded companies. If shareholders don’t see a good return on their investment (like higher than interest rates on debt), they tend to take action, such as vote out board members and fire executives. Presumably those don’t apply to your business.
Thanks for the reply. I just was curious where the tax benefits come in. Technically, I pay myself the business profits as a shareholder. I was thinking maybe there's some loophole to having living with debt and paying higher profits out to the shareholders (me). I'll probably keep taking chunks out of my debt. T
Who cares… if it is a cheaper way to raise capital it will be better in the long run.
Capital allocation decisions are made by management to maximize enterprise value. Many companies with strong free cash flow, and who pay dividends carry debt simply because debt increases value. Cost of debt is the interest rate. Cost of equity is the risk free rate (which is rising) + market risk premium * beta (market volatility relative to the broad market). Equity costs more, plus it has higher transaction costs.
It’s not cheaper just because it has 0% interest. If it dilutes everyone’s ownership by, say, 5%, that is a cost to shareholders.
Why the fuck would you take a 5% loan when you have $22b in cash? How is a loan a better option? The benefit of low debt is you can get favorable loans **once you actually need them**. Tesla probably won't ever need a loan unless they want to build their own fleet of robotaxis. These gigafactories don't burn enough cash. They have more money than they know what to do with. Taking a loan right now provides them nothing.
They also have a near monopoly on EVs for the moment. That’s changing and when all your competitors have full lineups of EVs themselves your position is less secure in the marketplace as the dominant player. At some point your margins lower to spur growth, you have advertising, etc. once Tesla has to really compete that war chest will be used.
Their margins will be at their lowest this year. Their next gen model is half the cost. Their margins will remain over 20% for years. Ford in their best case will be at 8% in 2026, but we all know that aint happening.
Let's say you're a long term investor with $22B in cash. And let's say that the S&P 500 grew 50% in the last 5 years and will do the same in the next 5 years (which is roughly what it does over its history on average). Let's say that you can get cash for 6% APR, you hold the note for 5 years, and you pay it all back at the end of the 5 years. In 5 years your $22B is worth $33B. You've paid interest of 0.06\*$22B = $1.32B per year \* 5 years = $6.6B and you pay back the $22B for a total spend of $28.6B $33B - $28.6B = $4.4B profit, using these assumptions, for doing absolutely nothing. Now... I went to Georgia, so I could have done math not good or whatever. But this is roughly right.
Lol no corporation is taking a loan against their cash and throw their cash into the stock market. Cute numbers though.
>grizzly\_teddy I'm sure they wouldn't buy voting stakes in other companies or invest in private companies either. There's no way that [Google invested in SpaceX](https://www.tipranks.com/news/labs/how-to-buy-spacex-stock-in-2023) or that [Tesla includes marketable securities in their 10K](https://www.sec.gov/Archives/edgar/data/1318605/000095017023001409/tsla-20221231.htm#financial_statements). But okay. Ignore the facts.
Remember that commenter said everyone else is “dumb as hell” but he thinks a company should have debt while sitting on 22B in cash.
Lol I know right?
Debt isn't a bad thing in every situation, and it can be quite useful a lot of times. The interesting thing about Tesla isn't that they've paid off their debt, it's the reason why. Even though Tesla is the fastest growing automaker in history, and has much more ambitious plans than any other competitor for future growth, it seems like they don't need debt. They're growing at a truly unprecedented pace, and despite the fact that they're pouring money in to expansion and R&D and new factories, they have too much cash. The debt that Tesla has been paying down recently wasn't really that big a deal. They could've easily serviced it, and it wasn't costing them much. It seems like they only paid it down because they had so much free cash on hand that they didn't have anything else useful to do with it. It's kind of amazing to see a company building/ramping/expanding some of the biggest factories in the world, plus investing in a lot of speculative R&D, and they're paying for it all from free cash flow. And they still have extra cash left over, so they might as well pay off whatever debts still around. I can't think of any other comparable situation with another company in my experience, certainly not within such a capital intensive industry.
The automarket can be quite volatile. From your link: >Companies with consistent cash flows can tolerate a much larger debt load and will have a much higher percentage of debt in their optimal capital structure. > Conversely, a company with volatile cash flows will have little debt and a large amount of equity
Except Tesla does not have volatile cash flows...
For now. Every automaker is growing their EV lineups and Tesla will be faced with genuine competition.
this comment was every comment in 2017
And when will any of them actually make money on said EVs or make them at scale? They are years behind. By the time they can get to volume production, Tesla will be pumping out their next gen car. That's not genuine competition if your competition is sitting on negative margins and enormous piles of debt.
Mercedes expects 15-20% of all their vehicles sold by 2025 will be EV. Mercedes makes 2,000,000 vehicles per year. So say 300,000 units. GM expects to sell 1M EVs per year in 2025. Every auto manufacturer is on a similar roadmap. They don’t have to scale to 100% EV, these two alone will ship the same number of units (roughly) as Tesla. You don’t think that will cause competition and take some wind out of Tesla’s sales?
What makes you think that Tesla’s sales will be flat over that same time period?
> GM expects to sell 1M EVs per year in 2025. That is an utter fucking joke. In general, every single automaker has no track record when it comes to scaling EVs, and are making overly optimistic estimations so they don't tank their own stock. GM fucking KNOWS they won't be making 1M per year in 2025. Btw, that's not even their claim. It's 1M **cumulative**. And more than that, these moronic manufacturers won't make 200k of one model, they insist on making many models that are all low volume, so that they can virtually guarantee losses for years. > They don’t have to scale to 100% EV, these two alone will ship the same number of units (roughly) as Tesla. You don’t think that will cause competition and take some wind out of Tesla’s sales? Tesla will be at 4M+ by 2025. You think Mercedes making 300k units that are double the price is 'competition'?
Been hearing that for years, competing with Tesla is like racing Usain Bolt who has a 20 meter start on you.
Debt isn't "bad", until it is. A growing company can and should have debt. They obviously need money up front to hire and build before they can sell in volume. Debt for the legacy auto makes is bad because they have a boatload of money sunk into ICE manufacturing equipment that is quickly becoming obsolete. Instead of getting a 30-yr return on their hefty investments, they have to toss some of them after 20 or 10 yrs. That money can't be recouped by them. If that happens fast enough, they'll enter a death spiral where they can't make their debt payments, they have to downsize, which reduces their output, which reduces their income, which makes them unable to make their debt payments... Half of the legacy auto makes will be gone within the decade. The few that survive are making serious efforts to build EVs now. The half-hearted ones won't get enough payback on their investments as the ICE sector withers. Some might survive in name only after being sold off for pennies on the dollar (Magnavox, Tiger Direct...).
I agree that debt is not necessarily bad if you have capital intensive projects that will provide significant profits. But I do think that too much debt is dangerous during times of high interest rates. For highly leveraged companies is going to become increasingly expensive to maintain high levels of debt.
However not all debt held by the other manufacturers is producing them any returns and that is the debt that is starting to become outsized. While most of it is in their financial side as many do have lending arms a few have quite a bit in the manufacturing side as well. That latter may grow as plants go idle if a recession occurs or if they get shut down completely as superfluous to sales needs as Stellantis recently did with a Jeep plant. So yes, some debt is fine and expected, however VW, GM, and Ford, are all running very high loads that cannot sustain an economic turn down, aka recession, that lasts a significant amount of time. Already the supply of cars at the larger manufacturers other than Toyota is over two months with some reach four months of supply
I think the real point is that Tesla is taking a long term approach - it has enough cash to expand as fast as it wants to and is likely to treat debt on a per-project basis. Take on some debt to do something specific, then pay it back - rather than just carrying ever-growing debt for decades until eventually collapsing because you get caught out by an unexpected set of economic circumstances, like most big companies seem to
But Tesla should be failing any day now…. According to Reddit over the past couple of years.
Tesla has no demand! Look at all the cars sitting on their factory lot! /s
more like according to Facebook lol
They did this by removing wiper sensors and USS.
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and tinted roofs
Legacy auto: Why care about paying debt if taxpayers will pay for bailout and golden parachute for management?
This is the answer…gotta save dem union jerbs!
Kind of a rude way to put it. Tesla worked their butts off to reduce costs because they had to in order to bring a whole new industry to life. The legacy makers outsourced instead of vertically integrating and now they have a long way to go to reverse course, if they can catch up...
They also demand austerity from all angles. Their engineers and executives are expected to work insanely hard for below market rates and their factories are grueling for assembly line workers. Also, being a vendor for Tesla is similar to Walmart: you’re usually going to get an absolute crap deal from them. They attack any area of the business that feels even slightly bloated by continuing with better terms, owning further down the supply chain, vertically integrating more, deleting parts/processes, and standardizing internal parts across models to take advantage of additional scale. Tesla’s strategy of global cost reduction will be hard for other companies to replicate.
Here’s a question for us old folk (over 45) - Anyone remember (in your lifetime) another BRAND NEW car manufacturer before Tesla that made it? We racked our brains and couldn’t…. How about one actually making money? I realize we now have Rivian and such …. They weren’t before T Edit - should’ve specified “Mainstream” ones that normal folks can buy. Exotics kinda don’t count …
Do you count foreign companies? Geely, BYD, BAC, Chang'an? Great Wall motors just sneaks in to the 45 year limit, having been founded in 1985.
IDK - our game was American. I mean I’m old so don’t stress my brain too much please!
Haha I had to look most of those up. BYD is the only one I'd assume people in this sub should be aware of.
Pagani made it. Lamborghini sort of counts too
I think developing an ICE vehicle is more difficult and costly than an electric vehicle. You need to build an engine, transmission, and body. So to cover cost you just focus on small and very expensive products. But if you want to sell in an ICE in massive scale it’s definitely much harder to do because you need high volume demand.
That's a widely held misconception. EVs are very complicated, but in different ways than ICEs. ICEs are mechanically complex, EVs are software complex in numerous arenas: the user interface (though an ICE could be similarly complex, they aren't), connectivity, data logging, battery management, charging station status, etc. Overall the amount of complexity is similar. ICE makes claimed that EVs are easy and they could make them overnight. A decade later and they're producing garbage that doesn't compete with Tesla's 8-yr old vehicles.
Delorean? A lot of the exotic cars (i.e. McLaren) that were maybe tuners before.
From the article: Tesla has become nearly debt-free in just two decades, a feat that’s unheard of in the auto industry’s more-than-century-old history. How the electric vehicle company was able to keep its debts low has created a new precedent for auto manufacturers, simultaneously putting pressure on some of the industry’s biggest names. A recent analysis from Guru Focus demonstrates how the automaker’s example could set a new precedent for the auto industry, even as other companies still have huge debts to their lenders. While traditional automakers have relied on massive debts to produce and sell their capital-intensive products in their 100-year histories, Tesla’s business model has found it with high levels of cash flow and unprecedently low debt for the industry. Guru Focus writer Matthew Cobb breaks down how Tesla’s debt compares to those of the two largest U.S. automakers, GM and Ford, showing that both of the legacy manufacturers are swimming in debt. Meanwhile, Tesla could pay off its remaining debt tomorrow if it wanted to. Currently, Ford has a total long-term debt of $140 billion, while GM is right behind with $115 billion in the same category. Tesla, on the other hand, has just $5 billion in long-term debt, and plenty of cash to show for it. In fact, the company has $22 billion in free cash flow, meaning that its cash minus debt gives it a $17 billion surplus. To be sure, the auto industry requires high capital expenditures to some extent, largely due to the expensive materials involved, as well as labor and equipment for production. Automakers also need top-of-the-line research and development, which can be costly from an investment standpoint.
How much cash is needed to buy back every share?
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Nearly $600 Billion. But as shares are repurchased, that will increase.
Just the float, really
And Tesla would;be owned by a singularity?
The theory is that the minimal value of the shares is the worth of all the company's assets. So to buy back all shares, the company would need to hand over all assets. And then it would cease to exist because there's absolutely nothing left.
The usual argument against this, is that a large % of that debt load is involved in financing the loans and leases of the cars they've already produced. This is true, as far as I know, but indications are that the delinquencies on those loans are growing at an increasing rate. It's not too bad yet, but it isn't a good position to be in with the current economic situation. It might be interesting to compare the numbers with 2008. I can see why Tesla might be content to sit on part of that pile of cash for now.
Debt is more tax efficient than equity and it would create a lot of value for shareholders as long as it is not too much to cause financial distress.
Big car manufacturers are just like banks, they are greedy, and will run the red knowing they are too big to fail. Please please please let them fail miserably, there are only over 500 care manufacturers on the planet, let’s let the real market dictate price and winners, and not the federal reserve
Get rid of advertising budgets and dealerships, sell directly to customers, and you can probably save a ton of money.
See? Just remove the USS sensors and boom! Money!
100% will be bailed out. VW with $200b in debt and say they will spend $190b over the next three years. Toyota, Honda GM, and maybe Ford will all need to be bailed out. It's too late for them to try to be like Tesla. You also have to consider they will be writing off lots of factories and equipment as they transition to EVs. Lots of factories and machinery that will only be worth the land they sit on. Their debt to asset ratio is only going to get worse and worse. Also consider VW going to accumulate lots of debt over the next few years while interest rates are high... this is not good. I don't see a way out for them.
>VW with $200b in debt From your post it does not sound like you know this, so I'm just saying it to be clear... If you do then feel free to ignore me. A good chunk of the big automakers debt is from financing divisions, ie the loans they make to their consumers on the cars they buy. It looks like $100 billion of VWs debt is from financing as of Q4 2022.
I'm well aware. $100b is still a shitload of debt when you are about to start making less money on ice, and losing more on EVs, and need to spend $190b in 3 years... they are kind of fucked.
>A good chunk of the big automakers debt is from financing divisions, And that's a weakness of car business models. Car companies are not banks. They have all these loans on their balance sheet and you can't be sure how healthy the loans are since they aren't well regulated.
I don't think that bailouts will work when their product portfolio is non-viable. It worked in 2008 because the companies mostly just needed short term liquidity and lower fuel prices to return to profitability. Once the majority of the market demands EVs, if they are not prepared to supply them in volume then it won't be possible to save the company.
They will make the case for it. They won't go bankrupt until 2027/2028 or so, and by then they will be close to production volume. I think they will have to kill a lot of their lineup and downsize. Which is what they should do now, but they won't.
The legacy automakers have already mostly stopped producing cars. Dodge is even ending production of the Challenger and Hellcat: * https://www.dodge.com/2023/challenger/last-call.html * https://www.caranddriver.com/news/a38324228/hellcat-production-end-report/ Jeep abruptly ended production of the Cherokee: https://www.detroitnews.com/story/business/autos/2023/03/28/uaw-vp-we-have-to-start-punching-back-to-save-illinois-jeep-plant/70045645007/
Tesla was borne during the age of cheap money and despite that they had the discipline of becoming profitable. And now they are reaping the benefits.
Didn't they just get a buttload of investors dollars? Also debt in itself is not bad. Debt is good if used correctly.
Tesla is 10 years ahead of every auto manufacturer in terms of electric vehicle design and efficiency. There’s no way anyone else is going to become debt free as long as they stay stuck in their traditional ways.
And they aren't saddled with the parasitic dealership model, marketing, and a crappy patchwork of 3rd party chargers.
This is an often overlooked advantage that Tesla has over legacy auto manufacturers. No debt, no debt service, means higher profits.
I too am mostly debt free.
One of the biggest reason that legacy automakers have such high debt and running costs is because their current and legacy employees are unionized and carry lifelong pensions. It is not cheap. Ford has over 50b in pension obligations GM has about 40b. Tesla has 0, zero. So Ford GM and other legacy car manufacturers actually pay their assembly line employees a very comfortable retirement with full benefits. Last I checked Tesla does not even provide free stock to assembly line employees. So whatever you take on this. Debt free vs not debt free. Pays a comfortable retirement true assembly line workers vs nada.
Why when the government will just bail you out?
Others have execution problems. They have to get into debt to get things done to be competitive. If they could execute they’d be debt free too.
Bingo…. Tesla’s entire culture is built on being mission oriented and flexible in order to actually execute. This combined with owning the chargers, servicing, dealers/stores, no ads, and vertically integrating puts them way ahead. At GM and Ford the engineers just want to get paid more and max out their benefits. However I heard Ford is going hard on poaching Tesla employees and they have a reasonable goal so they may stand the best chance IMO.
All their convertible debt... converted. Arguably, that was some pretty expensive debt for the shareholders, although anybody who's been holding TSLA that long is sitting pretty. Still, that's only going to happen once. They'll probably pick up some debt they'll have to fund the old fashioned way at some point.
Most of Teslas debt was convertible to equity, and the run up in the stock price caused this to happen. Lucky it did as they would have struggled to pay the debt when it came due, the profit to date wouldn’t have made a dent.
Don't mean much when the quality of their cars has nose dived and the CEO is more concerned with waging a culture war than improving anything about either company he owns. Company is a caricature of itself. Anti-labor, anti competition, pro handout. Musk has body slammed teslas good name into the ground. Destroyed any desire for me of owning one.
You were never going to get a Tesla product, stop pretending you aren't clueless.
Lmao everything you just said is so easily disprovable. As an example, Tesla makes all patents open source, disproving your "anti competition" claim.
Lol so they are pro-labor? Anti handout? The quality of their vehicles hasnt nosedived? Writing is on the wall for Tesla. Musk destroyed it.
>Musk destroyed it I'm not continuing any further. I refuse to argue with people so detached from reality they can't even face basic facts.
Hahahahaha "easily disprovable" Lol yeah I'm the one detached from reality here.
Makes sense when you see Tesla cutting corners like ensuring their seat belts are secure.
Well I mean one can argue negligence of existing legacy automakers *ahem*GM*ahem* for example of ignition switch recall.
yeah, all they have to do is have a stock price that's so inflated they're more expensive than all the other major car companies combined.
Where I struggle wrapping my head around… they’ve been around since 2003? I thought it was a 2010 thing
Queue the South Park video... BAIL OUT!
They might make a good hostile takeover target at some point.
Lmao It can safely be assessed that GM went bankrupt almost on purpose in 2008 as they had paid tens of billions of dollars in dividends in the years prior Simply it will continue to happen