Tesla uses very unconventional accounting to arrive at that gross margin. Specifically they don't subtract R&D costs from their margins. When you correct for this Tesla's gross margin is within a few percent of the median for the automotive industry.
> In 2015, Tesla spent over $700 million on research and development while selling about 50,000 vehicles. If Tesla reported gross margins like other automakers, gross margin would have been reduced by $14,000 PER VEHICLE.
Tesla also has huge sales expenses that they don't subtract from their margins. Take that into account, and Tesla isn't making any profit per car anymore. To make matters worse, they also need to raise an enormous amount of money in order to manufacture the model 3 at scale. It's questionable if they'll be able to do that.
Tesla is operated very much like a silicon valley startup. They're growing rapidly in the hope of becoming profitable when they reach scale. But they sure as heck aren't profitable right now.
> Tesla is operated very much like a silicon valley startup. They're growing rapidly in the hope of becoming profitable when they reach scale. But they sure as heck aren't profitable right now.
They have already reached scale, and are already profitable. They're just pouring their profits back into further growth. Yes, they're spending a lot on R&D, but that's not sending money into a vacuum, that's investing in the future expansion of the company. The article you link even admits this: "Would it be fair to include the billion-plus dollars spent to bring the Model 3 to fruition in a few tens of thousands of Model X and Model S gross margins? Probably not."
Incidentally, I would take anything from Seeking Alpha with a huge grain of salt. Anyone can post an article on there, and people often try to use that site to skew investor perceptions in their own favor. In fact, the author of the very article you link openly confesses at the bottom that he "may initiate a short position in TSLA over the next 72 hours." Conflict of interest, anyone? If you want to see how profitable Tesla is, I would recommend the GAAP numbers from their last quarterly report, rather than some Seeking Alpha author's selective reinterpretation of the facts.
Tesla is neither at scale nor profitable. They're selling barely 15,000 cars per quarter, compared to Toyota's 2.5 million. They're growing by taking on debt, diluting shareholders, subsidies, and other creative tricks (Model 3 preorders). They've been "profitable" for a single quarter by selling Teslas at a steep discount. Last quarter's report has been widely derided for the financial engineering therein. We'll have to wait and see what the sales numbers will be this quarter, but I'm pretty pessimistic.
Seeking Alpha is a mixed bag, but the authors are no more biased than the average wall street analyst. People who comment here also have their own agendas. Bias should be expected everywhere. As for your claim that anybody can write an article on there, that's not strictly true. They have a real name policy and failing to disclose properly can and will get you in trouble with the SEC.
By the way, having a short position and writing about why you are short (or the inverse) isn't a conflict of interest by any stretch of the imagination. The seeking alpha model is adversarial (like the justice system). People at opposing sides make their case and clearly state on which side their financial interest resides. Poor arguments get pilloried in the comments section. I think this model works remarkably well in practice. In order to figure out what's really going on forensic investigation is necessary, and that goes way beyond the plain GAAP figures.
> Tesla is neither at scale nor profitable. They're selling barely 15,000 cars per quarter, compared to Toyota's 2.5 million.
Tesla's sales last quarter were 24.5k cars, hardly "barely 15,000". Q4 is expected to meet or exceed that, despite being a shorter quarter.
If you pick the biggest car manufacturer in the world to compare them to, then of course they're going to look small. There are plenty of well-established, profitable car manufacturers that build far fewer cars than Toyota.
I don't want to argue semantics, so I'll leave it open for debate as to whether or not they're "at scale", but comparing them to a startup that hasn't figured out how to turn a profit yet seems highly disingenuous.
> They've been "profitable" for a single quarter by selling Tesla's at a deep discount.
If they can sell cars at a deep discount and still be profitable, then clearly the margins must be pretty good.
It's funny how you call me disingenuous when you selectively engage with my arguments and repeatedly assert that Tesla is profitable when it hasn't been profitable for a single year in the entire company's existence.
Tesla has 1/6th the market cap of Toyota but produces a tiny fraction of the cars. Tesla is exactly like other silicon valley startups in that they could have been profitable if they had chosen a different business model, but now they need to grow massively or they'll become insolvent. That's what I mean when I say they haven't hit scale yet.
Will Tesla actually deliver 100,000 Model 3 cars in 2017 as promised? I'm skeptical to say the least, but if anybody can do it it's Musk.
Compared to the rest of the car industry? They are a fraction of a percent of the market.
>and are already profitable.
They cashed in all their ZEV credits to achieve one quarter of profitability. How did they do with those backed out?
I mean, they could be profitable, but going by last quarter is deceiving.
>They're just pouring their profits back into further growth.
You assume that the car industry isn't capital intensive, and that the other manufacturers are not also spending heavily on R&D. But they are.
>Conflict of interest, anyone?
Uh, no. It's an investing site. If you have a negative view of a stock why wouldn't you possibly short it? Or do you believe that these small-time Seeking Alpha authors are moving the market?
Tesla likes to quote their gross margins because they look incredible at face value. However Tesla doesn't use a dealership model, so they have expenses for the sales process that other car manufacturers don't have. To get an apples-to-apples comparison with the margins of other car manufacturers you have to make adjustments like the ones I described earlier.
In most industries you're right but the autos have always included R&D in COGS instead of OpEx. Tesla is the only auto manufacturer who does it the other way.
Many people are Tesla fanboys, many other people are cheering on Tesla to fail. When the failure-cheerleaders exaggerate or make false claims the Tesla fanboys are overzealous in defense.
"Tesla also includes the tax credit in their price."
This is false... Tesla advertises their model 3 targeted base price as $35,000. This is before any tax credits.
People are bitter because GM has a history of screwing the customer WRT electric vehicles.
Many people wanted to buy their EV-1 but instead they sent them to the crushers. Like other people have said, GM is doing this to offset their truck/suvs and not out of a real interest in EVs.
>Like other people have said, GM is doing this to offset their truck/suvs and not out of a real interest in EVs.
This is simply incorrect, and is like saying Tesla is building EVs for the subsidies. GM are doing it because the future is EVs, and Tesla is to thank for that.
Yes, and that's a problem if you believe Crown Victorias are less sustainable for the Earth we all have to share and that our market does not price in sustainability externalities.
Even if we can now witness the benefits of competition in the short term (cheaper electric cars for us), it is not necessarily a good thing because it can force the company to be competitive to stay alive, instead of spending cash on R&D (innovation).
It seems like the battery packs on cars are engineered to manipulate people, and this would be an easy way of making two very different cars seem the same.
Lithium batteries degrade. With heat, with time, with charge cycles. Article after article writes about how Tesla's battery packs barely degrade! 8% capacity loss over 100,000 miles.
This has to be a lie. Unless they've come up with a new magical battery chemistry.
Lithium batteries degrade. 15-20% capacity loss per year. 2-5% per hundred cycles.
There are ways to cheat though, design your battery electronics to pretend to have a lower capacity at first and then gradually allow them to discharge more and more as the battery ages. It's true that there's a small boost to capacity retention if you don't fully discharge.
A new Tesla might well have an actual 400 mile range the day it comes off the lot, but they figure consumers would be really disappointed if that 400 mile range went to 350 after a year and so on... instead I'm guessing they pretend the battery capacity starts lower so that it's more consistent. In the end when they run out of spare room they'd initially left themselves the battery would fail fast.
What's to prevent a competitor to cut just a few corners on this strategy – don't give yourself as much future wiggle room so that you can say your capacity is higher?
I would actually love to be wrong, but what you see from the battery performance metrics just doesn't match up with any of my existing knowledge about how battery cells work.
I have an original Tesla Roadster, bought in 2010, with a battery that is basically the first thing they figured out how to do in order to put a car together. (The Model S battery is much more advanced). I drove the Roadster daily for 6 years, and I had about 12% capacity loss after those 6 years. This was a much better situation than Tesla projected (I don't remember what they said at the time, but it was something like 30-40% loss at 7 years, and for a relatively low price they sold an optional battery replacement plan that kicks in at 7 years).
Supposedly the Model S's chemistry is much, much better. Just saying "they're lithium batteries" is kind of a red herring, because there are many many subclasses of lithium battery, and at least according to Musk the fact of lithium is not nearly the most important part, but what really matters is the composition of the cathode and anode:
https://chargedevs.com/features/tesla-tweaks-its-battery-che...
[Edit: And the theory that they would have preemptively hobbled the car's maximum range by (.85^6) is just crazy, because it means they could instead have advertised a car that had THREE TIMES THE RANGE on its initial launch, and "range anxiety" was one of the biggest issues they had to overcome. They could have said OUR CAR GOES SIX HUNDRED MILES ON ONE CHARGE, which would be way more important than hiding some degradation.]
> Lithium batteries degrade. 15-20% capacity loss per year. 2-5% per hundred cycles.
This is a gross overgeneralization. There are many different lithium-based battery chemistries available, with wildly differing lifespans.
The voltage at which you stop charging also makes a huge difference in lifespan. Charge a li-ion battery 10% less full and it can make an order of magnitude difference in its lifespan. When you charge a li-ion battery to full, it's not really truly "full"; the charging system just stops you from charging any further past a certain point, in order to stop you from degrading the battery too much. It's up to the device manufacturer to decide exactly when the battery is "full", based on what kind of tradeoffs they're willing to make on capacity vs lifespan.
High temperatures can also really increase the degradation rate for li-ion batteries, and Tesla employs a sophisticated cooling system to prevent the batteries from getting too hot while they're charging or discharging. The original Nissan LEAF had no active cooling, and their batteries degraded quite quickly, especially in hot climates. This was partially addressed in later model years, but it's now clear that this makes a huge difference.
Like most people, you're probably used to seeing heavy degradation over time in your cell phone or laptop battery. Just bear in mind that it's much easier for companies like Apple or Samsung to advertise "our phone gets 20% longer battery life!" than "our battery capacity degrades 5% less per year than our competitor!" Add to the fact that many people replace their cell phone every few years anyway, and the incentives are clearly aligned to keep pushing higher charge voltages, leading to greater short-term capacity at the expense of longevity. It's also a hell of a lot harder to fit a good battery cooling system in a smartphone than a car.
I think a variety of things could be going on. Tesla does it's own research on batteries, so it very well could be making batteries that simply last longer than standard Li-ion cells. They also likely try very hard to design the battery management system such that it does not overcharge or totally discharge the batteries, which improves longevity. They also probably try really hard to keep the batteries cool. Batteries in cell phones and laptops typically die fast because people repeatedly discharge them to 5% and charge them to 100%, which puts the cells through the maximum amount of stress due to volume change. There is also poor thermal management in these devices, so the batteries are often hot when you are using your phone/laptop a lot. Lastly, you get a new phone every two years, so phone makers optimize for the highest initial capacity rather than best capacity over time.
How much lithium batteries degrade depends on their type. High current cells have different characteristics from high capacity cells, for instance. Tesla puts them in groups of 75 cells in parallel so they draw a minimal amount of current from each cell, thereby prolonging the life of the battery. They also monitor the health of the battery cells so they degrade as evenly as possible.
100,000 miles at 265 per charge (85kWh) is 377 charges. During typical behavior (commuting) the car will remain above 70% charged at all times. That by itself cuts the degradation roughly in 3rds. So we're looking at a 125 full charge cycle equivalent after 100,000 miles. So about 8% capacity loss sounds about right. No additional trickery required.
Apparently there is significant room for improvement here too:
> CEO Elon Musk once referred to a battery pack Tesla was testing in the lab. He said that the company had simulated over 500,000 miles on it and that it was still operating at over 80% of its original capacity.
Hard disks do too but the difference is that for disks it's more or less an essential function.
If you don't leave plenty of spare sectors over the very inevitable bad sectors will cause the drive to fail outright.
Perhaps that's a decision I'd like to make myself but it's still an essential function no matter what.
Leaving spare capacity in my battery isn't an essential function. That extra hundred or two miles the first few years of ownership has value and if I use it right away I don't lose anything (except marginally faster wear on the battery pack)
The disk issue is about essential function. If I left no spare room the disk would have unrecoverable failures in days or weeks.
The battery issue is only about perception. If I left no spare battery charge the battery would function exactly the same. It's life would only be reduced in that I'd be using it more (this is assuming that my above theory is correct)
In practice, although HDD's are meant to be able to deal with bad blocks, and remap them, I have found the opposite to be true.
(I've been working at a low level with disks for over a decade, writing data recovery apps and such)
I have found in practice that by the time a HDD develops a single bad block, 99% of the time it's on a death spiral and it's going to completely die within a month or two.
It seems like none of this bad block remapping, spare space, or anything of the sort has any effect whatsoever. The only thing that keeps them alive is being well enough engineered not to break at all.
Please correct me if my experienced misinformed me and I'm wrong.
In the past, a utility did the determination and remapping via off-disk software.
My understanding was the traditional "bad block" behavior was actually hidden - there are bad blocks that occur but the firmware silently remaps everything.
When you see a bad block at the level you can see via e.g. smartctl program, that means the space set aside for bad block remapping is full - the drive has already been silently failing for a while now.
Only because our file systems aren't designed with shrinking media in mind. A system could be designed to mimic the behavior of UDFS on CD-R media where the size of the filesystem shrinks with usage.
> There are ways to cheat though, [...] A new Tesla might well have an actual 400 mile range the day it comes off the lot
That's not cheating, that's responsibility. That's presenting an honest product expectation. Cheating would be implying that the initial capacity would last.
It's also probably not the case, as people are pointing out. But even if it were it would actually make me think more highly of the company.
> What's to prevent a competitor to cut just a few corners on this strategy – don't give yourself as much future wiggle room so that you can say your capacity is higher?
Does it make it through the warranty period? If so, then what's wrong? For N years those customers had an X/kwh battery.
Lithium batteries degrade. 15-20% capacity loss per year.
I'll correct you with empirical evidence: there are a ton of five year old Nissan Leafs that, by your math, shouldn't be able to pull out of their own driveway by now. My wife drives ours to work every day five years after we bought it.
There are ways to cheat though, design your battery electronics to pretend to have a lower capacity at first and then gradually allow them to discharge more and more as the battery ages.
After five years, given the geekery surrounding the Leaf and other EV, I'd be shocked that someone didn't figure out that the Leaf doesn't really have a 24Kwh battery.
Keep in mind you wouldn't regularly fully discharge a car battery pack, however you would discharge a phone battery. Thus capacity reduction occurs at a slower rate than a laptop or phone.
Why don't electric car manufacturers build in some time-dependent margin into their range estimates?
E.g. Only display a range of 350 miles at the start of a battery pack's life even if the real range is 400 miles. To the user, the batter pack performance would appear static (to some limited lifetime, anyway). At the end of life the margin would be zero, and the actual life would be equal to the true battery capacity at that time.
I know Tesla and GM would much more happily report the new battery range than that of a tired, old pack...
Some do that. The Mercedes B-Class Electric is one example. Tesla is more "honest", so you actually get to see the full capacity.
This does mean that you can see the capacity very slowly decrease over months and years, but I would personally prefer to know what's actually happening and be able to get the maximum range out of my car that I can.
The trade off is that the mere option to have higher range up front actually increases the rate of degradation!
So, would you rather have high range first and low range after six years, or a motte even range that degrades more slowly and is better after the first few years?
I prefer the latter.
The yearly losses are fixed, unrelated to usage. The per-cycle losses are indeed less when you don't fully discharge, but only by a relatively small amount.
Lets say you have a battery with a capacity of 100. Empty it completely 100 times and the capacity might be around 95.
Empty it only 20% 500 times (for the same total energy usage) and it's capacity might have only degraded to 97.
Better, but not nearly enough to erase the other effects.
Table 2 shows the lifespan of a typical Lithium Ion battery based upon various discharge depths. 100% discharge rates degrade to less than 70% of original capacity after only 300-500 cycles.
25% discharges hit the same value after 2,000-2,500 cycles. That level of discharge is fairly common with cars like the Tesla.
Having said that, you do have a point about overbuilt batteries too. Some Teslas do have much bigger than rated batteries that are software limited. It is completely possible for someone else to "beat" them on range by utilizing more of the available capacity.
>25% discharges hit the same value after 2,000-2,500
This is exactly the point (and easy to miss)
The degredation per energy used is about the same.
1 cycle of 100% = 4 cycles of 25%
So the 300-500 cycle loss is equivalent to 500-625 when you divide the number of recharge cycles by 4. You _must_ do this for an apt comparison because what you should be interested in is how your capacity deacys with usage.
Artificially smaller capacities also means that using the supercharger is more common. Another feature of lithium battery chemistries is losing capacity faster at higher charge/discharge rates. Trickle charging overnight will cause significantly lower cycle decay than supercharging in an hour (or whatever period it is)
I'm not sure that I understand your point right now.
With 300-500 cycles at 100% utilization, a 300 mile car would have degraded its battery to 70% after 90,000 - 150,000 miles. With 2,000-2,500 cycles of 25%, the car would have traveled 150,000 to 187,500 cycles.
That seems like a significant improvement to me?
Your point about supercharging is similarly valid, but also a little misleading. The big factor there is temperature and the Tesla packs use active cooling to reduce the hit from more aggressive charging. I'm not sure that anyone has really seen a significant impact from this.
Basically, battery quality and management matter. Tesla does those things pretty well.
Shouldn't this be an easy think to prove/disprove by just measuring the electricity used to charge the car over time? If my car required 15-20% more gas each year, it would be pretty obvious by simply keeping an eye on the amount of money I spend on gas.
Imagine the batteries that are like a gas tank that shrinks over time.
My assertion is that (for example) a car starts out with a 30 gallon tank that shrinks over time. When the car is new, it's engineered to be "empty" when the tank is half full.
It'll take the same 15 gallons to refill on the first day as it does a few years down the road when the tank has actually shrunk to be 15 gallons in size.
You seem to have bought into the internet myths about Lithium ion batteries. What you claim just isn't true. They do degrade over time but your figures are nuts.
My four year old rMBP has barely degraded at all and my 2.5 year old Nissan LEAF has barely degraded as well.
Try getting some more real world experience with these products before quoting a bunch of internet horseshit.
> In 2015, Tesla spent over $700 million on research and development while selling about 50,000 vehicles. If Tesla reported gross margins like other automakers, gross margin would have been reduced by $14,000 PER VEHICLE.
Tesla also has huge sales expenses that they don't subtract from their margins. Take that into account, and Tesla isn't making any profit per car anymore. To make matters worse, they also need to raise an enormous amount of money in order to manufacture the model 3 at scale. It's questionable if they'll be able to do that.
Tesla is operated very much like a silicon valley startup. They're growing rapidly in the hope of becoming profitable when they reach scale. But they sure as heck aren't profitable right now.
Source: http://seekingalpha.com/article/3994655-teslas-gross-margins...