Short version: They never had a cash problem. They invested the money they had into developing a car. Turned it into a success. Then invested even more into the next car. Turned it into an even greater success. And so on.
I wonder how profitable this type of 'short opinion piece' journalism is. How much does a journalist get paid to write something like this?
Running some content websites myself which make like $0.001 per visitor, I am surprised this can be sustainable.
Remember their "Secret Master Plan?" This was published 12 years ago:
>In keeping with a fast growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible. When someone buys the Tesla Roadster sports car, they are actually helping pay for development of the low cost family car.
They absolutely did. Tesla was a bet on production. They bet the company over the past few months.
They weren’t an Amazon “if we dial it back a bit we can be profitable” case. They were a “if we don’t make enough cars we may not pay our debts” case. They made enough cars. That doesn’t mean the concerns ex ante were unmerited.
Author here. What do you mean by "short?" The piece is 1,500 words, which is about double the length of a typical newspaper column.
I'm not going to get into the exact economics, but Ars writers write about a piece a day, and the average piece gets tens of thousands of visitors. Revenue per article (for most mainstream news site, not just Ars) is significantly better than $0.001 per visitor. High-end advertisers are willing to pay a premium to put their ads next to high-quality content and to know the demographics of the people seeing their ads. None of us is getting rich doing this though!
We're also fortunate to have a significant base of paying subscribers, which makes it easier for us to write in-depth pieces that might not generate enough revenue from ads alone.
First of all, let me say that I liked the article. I am the one who posted it to HN after all.
Maybe "short" was not the perfect word to express what I mean. I mean that the message/idea is kind of short. It's almost like a showerthought "See this chart? It looks like they are in the red all the time. But think of it this way: They build success after success. They could have been profitable ever since Model S. But they keep investing in bigger projects instead.".
Interesting, that the revenue is significantly higher then $0.001 per visitor. Because it looks like the main ad spots are filled with Google Ads. Which I run too. Do advertisers really target specific sites manually via Google Ads? I would have thought they do that algorithmically based on demographic factors.
Serious question, and I'm not a Tesla hater either:
Why does anyone spend $35,000 - $50,000 on a car? It just feels like a number that is at least 5x too high.
A used car from a fairly reputable source can be had for between $3,000 - $6,000, depending on mileage and cosmetic appearance. My 2005 Ford Focus sedan was $3,000 and should last me about 3 years before I need to make a decision about major repairs, so that's less than $100 a month in ammortized costs.
Are there really hundreds of thousands of people who are making $5,000+ a month necessary to justify the purchase of such an expensive vehicle? I'm not far from that number and most of my money still goes to food and rent.
That's a different question than the parent (albeit a related one).
If there's no one to buy 35k cars, there won't be a steady flow of 5k cars indeed, but I don't think people buy 35k cars because they're nice people trying to provide 5k cars to other people after a while
Of course they don't. But you can't declare dependence on an ecosystem, simultaneously declare that the ecosystem is stupid, then have people take you seriously.
You absolutely can. If everyone in a neighborhood tossed dollar bills on the street cause they didn't like carrying anything smaller than a five, it would make sense to both make a living picking them up and say "why the hell are they doing this?".
Similar the rental market, I'd guess. Mostly done by those who couldn't afford to buy new but at a greater long-term cost.
I've seen people commenting that the money you save on buying new just goes on repairs instead: I don't agree. There's a fashion and entertainment value to driving something that works just as well as a new car but is newer, so the market gets pushed down.
That's still a $12,000-$22,000 car. Nobody can build one for $5,000 like anoncoward111 wants or needs, and it probably will be nowhere as reliable as a 10-year old Honda.
Because someone wants a nice car. You are spending a couple hours a day in your car so if it small, cramped, slow, vibrates a lot why would you subject your self to that especially if you have disposable income.
It's not about whether or not people _should_, it's just that our debt-driven society encourages it. Almost everyone these days seems to get a loan so that they can buy a vehicle they don't have the money for. This is one socially acceptable way to burn a huge chunk of your money.
I'm not a fan of electric cars, but I could see myself putting down such a sum of money for an old Mustang if I had the spending money. For people who spend such a sum of money, it's less about having a transport and it's more about hobbying with it.
I am equally baffled by people's love of throwing money at cars. When I needed a "new" car two years ago, I asked my mechanic what sort of car they would want from a reliability/value standpoint. I was told Subarus or Toyotas not later than about 2007 were very nice. I spent 3 months watching used listings and wound up with a very low mileage 2006 Rav4 (for ~$10k) and it has been wonderful.
>I spent 3 months watching used listings and wound up with a very low mileage 2006 Rav4 (for ~$10k) and it has been wonderful.
People think used Toyotas are made of gold. You could almost have a different Tahoe (in equivalent condition) for each day of the week at that price point.
Toyotas are the lowest maintenance used car you can buy. I've owned many and now only buy Toyota. When I can buy a 9 year old luxury model for less than 10k and drive it for another 200k+ miles putting minimal maintenance into it, that's saving me a ton of money and gives me a comfortable car to drive for my three hours a day commuting.
Tahoes? Yeah. You're going to put a significant amount of maintenance into an over 100k Tahoe. They're nice vehicles but the maintenance costs are more than I want to pay.
There might be comfort features in a more expensive car someone wants, also, new cars come with warranties. Or even certified used tend to be more recent cars with warranties. Car repair can be one of the more expensive unexpected expenses. Not to mention depending on your commute and job detrimental to your life.
Do you live in an expensive area? Seems likes spending most of your income on food and rent at that income level is high.
"Why does anyone spend $35,000 - $50,000 on a car? It just feels like a number that is at least 5x too high."
If someone makes $250,000+ a year, it's not unreasonable.
"My 2005 Ford Focus sedan was $3,000 and should last me about 3 years before I need to make a decision about major repairs, so that's less than $100 a month in ammortized costs."
That's completely unrealistic. You have some sort of competitive advantage (REALLY know someone trustworthy), or you are delusional. $3000 cars are generally very high mileage, unreliable, in poor condition, etc. Timing belts, suspension components, drive belts, starters, ac compressors, minor electronics, etc tend to start going on these cars.
"Are there really hundreds of thousands of people who are making $5,000+ a month necessary to justify the purchase of such an expensive vehicle? I'm not far from that number and most of my money still goes to food and rent."
I believe a car should be 3 months income at most. So no, I can't justify anything past a $10,000 car.
What I can say for sure is that unless you are a decent mechanic with tools or have GOOD friends / relatives that are, you shouldn't walk around espousing 3k cars. They just cost way too much in time.
Not at all. You can buy a good, reliable, well maintained car for $3,000. Mileage is less important than maintenance history. The Focus is a particularly good choice IMO. They are reliable, pleasant to drive, and Ford made gazillions of them so you can get them repaired anywhere and parts are cheap.
You can also buy a basket case for $3,000, so you do need to have a bit of an idea of what to look for (or what to avoid).
Look for any 1999+ Toyota Carolla/Prism with under 200k. Many camary of that era are bulletproof. Civics all got bought up by ricers, but '3k civic' is literally a meme for being so common.
Wasn't there a year recently where reliability skyrocketed? 2004 or something? I thought I heard there is a clear cutoff point where you should not consider buying a car before that date.
Seriously - I just sold a 1999 Civic with 150,000 miles for $2,000. The car made so many noises and did not feel safe at all. Yet, someone paid real money for it and was happy about it.
Most cheap used cars are pretty junky. That is fine if you want a beater to drive to work and back or if you have mechanic know-how. It's a lot sketchier if you want a car to drive your kids around in or if you want to drive on longer trips where you need reliability.
As someone who prefers cheap cars, one of the keys is basic maintenance know-how. Anyone can learn to do the basics (oil changes, air filter, spark plugs, brake pads, etc.) with a few hours of learning on YouTube.
I'd never waste my money on a new car. My current car is 10 years old and it feels so uncomfortable new. I felt like I was spoiling myself when I bought it.
That basic maintenance worked for my Dad, he got home from work at 3:00 pm and also had whole weekends for car/house/lawn/garage/hobbies.
I work further from home, with a higher paying job, and get home typically around 6:30 pm. Weekends are spent cramming in other household maintenance, recreational activities for the family, etc. So if having that new car (and spending $80 at the dealer every 3 - 4 months for basic maintenance) means having more free time to spend with my family, I feel it is a really good tradeoff.
My cars generally cost about 300-500 quid. If it breaks I buy another one. I can buy 5 or more of them for your quoted 3K.
Are they as safe as a Model S? No. Are they substantially more dangerous than other things I do in my life? Probably not.
Once things start to break you scrap it and get another one. Done.
I bought a Civic for 325 GBP, changed the tyres for ~150, and drove it around half of Europe, putting 10K miles on it before selling it because I moved in to a city for a while. I basically just treat cars as a 'subscription cost' model rather than any form of capital.
In the US you have the issue that a car might be a hard requirement to get to work. In that case I'd probably just buy two and drive them on alternate days so there's always a backup. You guys seem to have enough land for this to be viable. Still cheap as chips.
Aren't insurance costs way higher than the amortized cost of the car itself? Especially in the UK?
> In the US you have the issue that a car might be a hard requirement to get to work. In that case I'd probably just buy two and drive them on alternate days so there's always a backup.
As long as you're not paying almost double insurance, this sounds like a good option. You could even rent the other car out on the C2C rental exchange.
Depends where you are - with 11 years no claims, I paid around £500 a year in London on a Volvo v70 2.4 litre, currently paying £230 a year (out of London) for a huge people carrier that also has my wife as a named driver who has only just learnt to drive.
Though yes - insuring 2 cars could be costly - some places offer a multi car discount, some with a device that only charges you when you drive.
This is the case, yes, but generally insurance companies are aware that you can only drive one car at once and adjust premiums appropriately.
That said, in the UK it's hard for me to think of a circumstance in which two cars would be a hard requirement for someone who can't 'afford' a decent car.
Here, you probably live in or close to a city. You might not want to cycle in or get a taxi/bus to work every day, but if your car fails you could probably do that whilst getting another one.
So the second car is only necessary if you live in the country, which is a minority, it's nowhere near as common as the sort of "live 30 miles outside of work with no train station" stuff that happens in the US.
If my car breaks it doesn't really even matter. I use it because it's easier to do big supermarket runs and saves a bit of time here and there; the cost equation works out roughly equivalent to using public transport.
I didn't truly understand what a rust bucket was until I tried buying a used car in Northern Virginia (I had just moved from California). Everything below $2000 USD was a rust covered death trap that couldn't pass a vehicle inspection. I test drove a $1500 car and cut myself on the rust as I got into the vehicle. Another $1900 car was kind of low rust, but it couldn't pass the vehicle safety check.
Yeah. It used to be a lot worse believe it or not. But, still, anything over about 10 years old in the Northeast and other snowy regions are pretty much at EOL. I made the mistake with a prior vehicle (which I bought used) of doing a couple fairly major repairs when it was about 12 years old and it ended up being just a cascading set of failures due to rust.
"Help" is the operative work. Modern auto manufacturers do a lot of things to help vehicles resist rusting out both in terms of the structure and in the various brake lines and so forth. So now they rust out in maybe 10+ years rather than 5 or less.
Having two cars isn’t quite realistic in the US for that context. Someone buying cars like that likely lives in an apartment in a city with limited parking. I’m sure it happens, but it’s not scaleable. Granted, that applies to many things in US life.
I suppose it's hard for me to conceptualise because here in the UK, anywhere with restricted parking also has public transport.
Here, generally restricted parking exists within 10-15 minutes walk of a train station (to stop people blocking up residential streets when they commute in to town).
So if there's restricted parking, you can get by with one car (or no cars), for the most part.
My experience has been more and more highly dense real estate is built with exactly the number of parking spaces as needed and no more. Developers extract the most revenue that way - to the detriment of people who actually wind up living there. That was my experience in LV anyway. It looked to be the case in SV as well.
Is on-street parking generally restricted in suburbs in the US or something?
It's confusing me that you refer to 'parking spaces', that's what I mean by restricted parking - generally anywhere outside of public transport range in the UK is free-for-all - you park at the side of the road. There are no 'spaces', aside from the physical restriction of the length of the road.
Yep, cheap cars are possible and they can work. My last car while still in the US was an old Kia, which I bought off Craigslist for $500. It was a beater but lasted me several years, during which time I might have spent another $500 to fix one thing or another.
Otherwise I had several cars when I was younger, all used, and all of them costing below $6000, without having to spend a fortune on maintenance.
> Are they substantially more dangerous than other things I do in my life? Probably not
Depends on the other things you do in your life, but statistically, I would say: probably. Rock climbing, assuming you use a proper harness and rope, is significantly less dangerous.
I'm in a fairly expensive metro area and 10-year-old Priuses are about $3500. Not hard to find, and if a good mechanic does a pre purchase inspection and doesn't find anything major wrong - they are extremely reliable cars even now. Plan to spend another $500 on tires, as with any used car. The only thing most shops can't easily check is the HV battery cells; even if that goes out, again, there are shops that will replace the battery pack for under $1000.
I'm not sure how much it varies country to country - I'm in Eastern Europe myself (lower labor costs, higher import / taxes etc) but my trusty toyota corolla was bought for about $3000 with no "friend discounts", just a general recommendation that Japanese cars are reliable and a bit of quick looking around the local car craigslist equivalents. I've been driving it for about 7 years (12 years old in total) with no major repairs whatsoever, only routine maintenance and a couple of bodywork fixes that we can contribute to "user error".
And its not that I'm an outlier or anything, most of my friends have stories in the same ballpark. To be honest I even paid a bit too much due to my inexperience, if you're smart and know the right people you could get a better car at close to half the price.
Arbitrage exists - the difference can't be that big because if it becomes so, then lots of people just drive used cars across half a continent to resell them.
International movement of used cars is a big business, generally from more wealthy countries (where more people buy new cars) to less wealthy ones, but also to cover gaps in the market if there's a disbalance in some sector e.g. a surplus of used vans because of some large company selling them off, or a lack of a particular model that's randomly gotten in fashion somewhere.
Not quite $3k, but I paid $4500 for a 2012 Chevy Sonic a year ago with a clean title, a bit over 50k miles and no real issues.
I brought it to the mechanic once for a check engine light and I had it back by lunch with a trivial fix for like $150, and other than that am just doing normal maintenance.
I could buy a Tesla or whatever if I wanted to without it really noticeably effecting my immediate position, but from the perspective of my car being an appliance that does its job, I see no reason to spend more than I did, at least until I can get something that I can go to sleep in and wake up 100s of miles away at a beach or ski resort.
There are other ways to incinerate 50k that I'd get more joy out of than buying a car, but even beyond that I'd rather just leave it all in investments to get my capital gains above my expenses as fast as possible.
If you had enough in capital gains to buy the car from just those gains, or if you are a person that is really genuinely going to get $50k worth of joy out of it and make enough that the expense won't add any stress then I would start to not be able to argue with it financially, but I think both of those are very few people.
For many, many years I have had a personal benchmark in mind when purchasing vehicles. I want my TCO to be < $1000/year barring routine costs like fuel, oil, tires.
So if I purchase a car for $3000, I expect to own it for 5 years with minimal problems. There is room for a bad alternator or a starter. But not too many of those over that 5 years. Of course, if I can sell it for $1500 after the 5 years, that's another $1500 I can sink into maintenance and still justify that it cost me < $1000/year.
If I spend $10K, I have to think the car will be reliable for 15 years with ~$5K of repairs along the way.
In the past five years or so I have thought I might need to raise that $1000/year figure to reflect modern practicality. But, surprisingly, I haven't really needed to. Cars are becoming amazingly more durable, and prices in the used car market aren't sky-rocketing the same as in the new car market.
Still, it is time to make the transition to electric. The used electric market is still very immature. I don't want a used Prius. I'm ignorant of how to value used batteries, so I'm not sure what the maintenance costs will be on an 8-year-old Honda hybrid with original batteries. A 10-year-old Tesla is still way beyond $1000/year. To step into this brave new world will probably require me to suspend my $1000 rule until the water settles a bit.
Or I can pick up one more ICE car and stretch it out for 10 more years while things sort... Or compromise and just get a series of 3-4 year clunkers until I'm ready to dive into electric.
Or just bite the bullet and take the plunge now...
Or...
It will probably not get you there, but for TCO electric you really should factor in fuel costs. Even if I think the study is somewhat optimistic (and as far as I see it is talking about new cars, not used cars), it's clear that it's a major factor:
I have both a MacBook Pro and a Chromebook (Samsung Pro). The Chromebook has quickly become my go-to computer, and I never feel like I'm just "getting by" on it.
I also replaced a LEAF with a Tesla. Ever since doing that, my girlfriend has been asking to go back to the LEAF, because it got the job done just fine and wasn't complicated.
Outward appearance, vanity, they actually have the free cash, ignorance. There's a bunch of reasons people buy expensive cars... most of which don't make sense other than that's what they choose to spend their money on vs. whatever you've chosen to spend your money on.
It's also an entirely incomplete picture on their financial situation. Maybe they have a paid for living situation so this is their only liability, maybe they don't have any money in their savings account, maybe they don't have a retirement account.
And with Tesla it's probably even more complicated because there are some "feel good" motives to buying an electric car that may outweigh any sane financial decision.
Some don't look at the sticker cost as how much it will cost to them, but the cost of a few years of financing it (on good rates) + the money they lose to depreciation before they trade it in for a new car.
Well, somebody has to buy new cars or there wouldn't be used cars. If most of your money is going to food and rent you must live in a very expensive location.
The short answers are: cars can be resold, so you're only paying for interest, taxes, depreciation, maintenance, repairs, insurance, and gas.
After working with vehicle data for 6 years, I can guarantee that someone who buys a 1-year-old Prius is actually paying less per month than you are for your 2005 Focus.
People who buy brand new cars are obviously paying a huge "drive it off the lot" tax in the form of depreciation, but they know that and think it's worth it. Some people are afraid to buy used, some like to drive a new car.
It's just another example of "it's expensive to be poor". If you can buy a better car, you end up paying less over the course of your owning it.
Of course, that idea breaks down if you buy something unreliable AND expensive. It also becomes fuzzier with luxury cars, since they're expensive to repair.
But a used, super-reliable car that holds value well, like a Prius or a Camry, is generally going to have the lowest total cost of ownership out of the whole spectrum of car options.
To add to your "cars can be resold" comment: my friend drives Masaratis. He always has an eye out on used inventory and snags the under-priced ones. Continuously flips them for same price he bought it for after driving for awhile (6 mo to 2 years). Many sellers are the very rich folk constantly buying new cars or who's work have been re-assigned to a different country.
The most I'll spend is at the low end of that range. I've driven fancy German cars and understand the attraction but not enough to shell out the money.
I like getting a vehicle with the features I want and the room to haul all my various sports gear. I've bought used vehicles but, generally speaking, I like being able to buy a car with the features I want and basically not having to materially think about maintenance for a very long time. I can't say that I've found the used cars I have purchased to be particular deals in the long run. Car maintenance is one thing I'm willing to pay just not to deal with as much as possible.
I do think a lot of people spend more on cars than they can/should. I could spend less myself but on an annual basis I'm pretty frugal and haven't had a car payment for many years.
It is far from a sure bet that a 15-year-old $3K Ford is the fiscally responsible choice. It's kind of the reverse of the problem of people spending too much on cars -- someone getting focused on the absurdly low price and not factoring in what it will actually end up costing them over time.
A lot of new cars these days start out at $20-25k. I imagine a lot of people are interested in the $35k Model 3 because it will have lower ownership costs than a gasoline car, is more fun to drive, and is neat. When you take that into account, the difference between a $25k gasoline sedan and $35k Model 3 is not THAT big.
I used to do the whole used car thing, but at this point in my life I spend more to feel safer and to be more comfortable. I still have never spent more than $25k on a car, but I definitely want to drive something that I am confident will not break down.
There are as many reasons as there are people, I don't know if you could really generalize an answer. I spent $40K on my current car because I'm an enthusiast and it puts a smile on my face every time I drive it that a 15 year old Focus definitely would not. To each their own. And in the grand scheme of things, the monthly payment (on a 1.9% loan) is about 3% of my income. As long as I meet my goals for savings, I don't really feel guilty about spending some money on stuff I enjoy.
Yeah I'm too frugal to spend like that on a car. At some point I'll buy a used Model 3...once it costs 30% of that.
For now I love my 40mpg and low maintenance and insurance costs of a 10 year old hybrid Civic.
But you have to think about all the people who buy cars for other reasons...supposed signaling, the impression it gives others, devout brand loyalty, good old consumerism... There's just so many reasons that are "misguided" from a financial perspective, but logical from the personal perspective.
It is true that at the moment a conventional (non-electric) vehicle is cheaper. However some people do want to own a car that has a lower negative impact on the environment and are willing to pay more money for that (which is a good thing).
This is a factor for me. I’ve never owned a car and if I can help it, want to avoid ever buying an ICE or partially-ICE vehicle. There’s a tiny used EV market, but it’s mostly filled with early entrant models that make serious compromises, making buying from it somewhat impractical.
So I’m now considering buying a model 3 in the next 1-2 years. If I can’t make it work financially, I’ll just make do without a car until that changes.
I recently bought a new car that was less than that, but still in the $20s.
I had previously been driving old cars, which was OK, but I had never bought a new car before, so it was nice from that perspective.
It also had some features that I wanted and do appreciate. Like Bluetooth, USB audio storage, and various safety features. Excellent fuel economy too.
I plan on keeping it 15 years and/or 200K miles, or more, so the amortized cost isn't bad. Given my age, it is likely the only and last new car I'll ever purchase, because I'm sure the driving landscape will be substantially different than it is today.
Not married nope, girlfriend drives a way more expensive car than I do but we usually do road trips on my beater because we don't want to hurt the nice car haha
1) Your TCO (Total Cost of Ownership) for a cheap used car can't be $100/month. If you look at Kelley Blue Book or similar websites, they'll tell you that even super cheap cars like that 2005 Ford Focus will still cost you $300-400/month, all included.
2) I almost died in a car accident two years ago, and a result, I value car security way more than before, which means I wouldn't mind paying $35,000 for a very safe car (assuming I'll be able to afford it).
3) Salaries and wealth are not evenly distributed. Something that looks expensive to you, doesn't for someone else.
My TCO for my 2003 Toyota Sequoia has been $70 a month. I paid $8,000 for it 3 years ago and have paid $500 in maintenance (standard scheduled maintenance plus $60 in repairs). I pay $23 dollars a month for liability insurance. Depreciation has been approximately $1,200 (at worst). I'm not so sure I'd own anything but a larger (safety) Toyota (reliability) that old, but just wanted to provide some anecdata.
> Your TCO (Total Cost of Ownership) for a cheap used car can't be $100/month. If you look at Kelley Blue Book or similar websites, they'll tell you that even super cheap cars like that 2005 Ford Focus will still cost you $300-400/month, all included.
My personal econobox, which I've had for a bit over five years, has so far run around 0.17 cents per km, or $155/month, with around 12,000 km/yr. Fixed costs (insurance, registration) add about $75/m.
So you either won the car maintenance lottery or DIY'd it and disingenuously priced that at nothing. Good for you -- but not good for planning purposes.
That sounds about right -- my rule of thumb is that $200/mo TCO is about as low as you can reasonably go "in general".
My last two vehicles were
1. 2005 Chrysler Pacifica. Paid $16,500 in '07. Sold in '17 for $1,900. A few sets of tires, insurance premiums, and (gently) hitting a couple of deer put it around $225/mo over those 11 years.
2. 2009 Pontiac Vibe. Paid $14,500 in '11. Still have it and it's only needed minor repairs (knock on wood). Sitting around $250/mo TCO, but it's still worth a few thousand.
Some people like cars. If that's their thing, then cool. I dislike driving and everything having to do with it, so I have typically go your route within reason. Buy a used brand that is known for reliability.
There are both sociological and economic reasons for it. On the sociological - new cars can be a status symbol - especially in the Luxury markets. Interestingly enough - the European luxury car market is roughly twice that of the United States, despite per-capita earnings being lower then the United States. Are you German and driving a beat up Honda Civic? Not a good look. Tesla is benefiting from this - the cars are highly viral, and aligned with affluence, political persuasions, environmental outlook, sports car enthusiasm, etc. It's turning Americans more willing to buy a luxury car, if it's a Tesla. Then social network comes into effect. If one of your friends buys a Tesla, you are very very likely to as well. This is basically the only marketing program that Tesla Does (Referral codes from friends).
(BTW, I say all of this as someone who finally pulled a trigger on a "Lemur" Model 3 earlier this week).
There is also the practical - when you buy a used car between 3k and 6k, you are basically on the long tail maintenance wise. It's a good bet that the reliability of the car, and the efficiency of the car are both dramatically less then then a new car. I also enjoy snappy acceleration and a car with a low center of gravity. You get into a Model 3, and Internal Combustion Cars just feel like a horrible piece of legacy technology. Could I get away with a old Ford Fiesta or a beat up Civic? Yep - and this is replacing a 15 year old Honda CRV... but I bought that Honda CR-V new, and I have gotten every bit of value from it - and I'm passing it on to family.
Ah, the good old fool's logic of trying to impress people you don't actually care about. How stupid this can be... Can you actually be impressed by somebody's car? I can't for more than 1-2 minutes even if we talk about porsche/ferrari. Lasting positive impression can't be bought, no matter how much cash you throw at it.
Reliability of an old car can be an issue, but if you find a good mechanic, he will go over junky car, fix and replace what is needed, and on top of 3-5k you spend maybe another 3-5k at most. Even better is to have an used car be shopped around up by such a mechanic, but that often requires a friendship on some level. Voila, reliable car for 6-10k, you just need to get a check once a year (shouldn't be costly if initial one was done properly).
I have 15-yer old BMW 3-series, amazing car. Won't change it till it dies/crashes/gets stolen. Fiancee bought before old Toyota Corrola combi for 5k - amazing workhorse. Driving experience is crap compared to BMW, but it just keeps working, consumes nothing (diesel 2l engine). New one costs easily 4x more, for very little added value.
Unless your pay directly depends on you being reliably on time someplace, or you commute over longer distances in some higher white collar job, this is enough.
The status thing must be important for tesla sales, considering that for its price point it s not a luxurious car, but rather mediocre. The novelty and eco factor however are guaranteed to keep its status icon for a few years, or until the first better competition comes along.
I am in the market for a new car. I looked at the BMW,Volvo, the Mercedes, Audi and Lexus. I am replacing a Honda CRV, but my needs have grown, and my disposable income is reasonable, so I am looking at this segment of cars.
I would (and in fact, am) taking the Tesla over any of the others, despite my early idea that I would get a BMW. I just didn't like the responsiveness of the car, the clutter and BMW nickle and dimeing me for repairs and things like carplay.
I really liked the Volvo, but the things in the Volvo that I liked - the technology, and the panoramic roof, I could get for cheaper with the Model 3.
I finally pulled the trigger when the Midrange ("Lemur") Model 3 became available. At that point, my out of pocket costs on the Tesla was cheaper then the Volvo and the BMW.
If you have not already tried it - go test drive a model 3. It's a lot of fun.
(Not limited to cars; see the fact that even well earning individuals in the UK, US, etc, could only weather a few months without work because they scale up lifestyle to match).
That, and that many people actually have money. London alone has over 400,000 millionaires by NW, one years' interest on that pays for a Tesla.
Why would you buy modern PC, if you can buy used Pentium 4 with 2GB RAM and setup some swap for probably $50 or something like that? Some people like fast shiny things and have money to pay for it.
My prior car was new and I later decided that the added expense of a new car did not justify it. My plan was to get a few-years old "A to B" used car (like a Corolla or something) when it started needing work.
But I did change my mind and get a Model 3.
* Autopilot is quite nice. I'd compare the experience to driving a car with cruise control as compared to one that doesn't have it. It's not the end of the world, but if you have a car with cruise control, it's tough to imagine intentionally buying your next one without it barring financial difficulties.
* Not having to fill up at gas stations is nice. There's a little more planning involved for trips, but for normal day-to-day, it's waking up every day to a full tank.
* Upcoming software updates. The initial Model 3s didn't have summon or the dashcam feature, both of which have been added over the air, and more of which will be added sooner.
* I think the auto industry in general has become stagnant and "safe" in terms of innovation, and I want to support a disruptive entity that will force the others to re-think the ways they're doing business.
* It's got an API, which already has third party tools for an Apple Watch app, detailed analytics, etc.
* They're taking a risk with the interior of the car, with the lack of gauge cluster and spartan design. To me this looks like what happened when the software industry switched from "as many UI buttons and features as possible" in the '90s to the simplified, "overall user experience" focus we see in modern software. And I want to support that.
* There's some "feel-good" factor to damaging the environment less, and supporting the market that will allow for society to join in.
I agree with you in that I can't imagine spending $63k on a non-Tesla. The differences between a basic used car and a new Mercedes or something just don't justify it. But I do feel differently about the Tesla.
> * They're taking a risk with the interior of the car, with the lack of gauge cluster and spartan design. To me this looks like what happened when the software industry switched from "as many UI buttons and features as possible" in the '90s to the simplified, "overall user experience" focus we see in modern software. And I want to support that.
I guess this is fine if you live in California, but a car that I can't operate while wearing heavy mittens is literally unusable to me for nearly half the year.
So to answer your question seriously, people take out auto loans and lease expensive cars because they like buying expensive things, even if they can't really afford it.
Well, a couple of weeks back, I bought a car. I would have bought if 35K Model 3, if one was available. Why? Because I didn't want to burn gas when there might be other options available; because I wanted to do my part in keeping an electric vehicle company alive; because I wanted to be less of an asshole to the future generations that have to live with the consequences of things we do now.
Yes, I know most of electricity is still generated from fossil fuel sources. But baby steps.
I am not a car fanatic like these people, but I think I get it. Some people just love cars, like how some people love gaming rigs or skiing. They love the things so much they’re willing to go into debt.
Part of the phenomenon may be branding too. Cars are used as a status symbol. It’s not necessarily used to broadcast that you’re a “better” person than others, but maybe that you have “good taste” and “can afford it” (think something like expensive designer handbags but more functional).
And some people are just dopes who spend money or go into debt with thinking about it. They’re financially illiterate. These are people who make emotional purchases and feel very excited and happy about their new car, who gripe about their debt two months later when reality sinks in. I feel bad for them.
If you buy a new car and resell it after 3 years, you can end up spending the same amount as you would do with a used car. You always run the risk of a bad accident ruining your investment but that's also what insurances are for. With a used car you run a higher risk of having unforeseen failures much earlier than you would want.
All in all I am still buying second hand cars but the investment into new cars is not what it seems at first.
Really not sure (I've always driven 'bangers' that are at least 11 years old) - but shocks me to see friends buying new cars.
That said a number seem to be:
* Company cars
* Bought as part of 'own company'
* Leased
* Hired
* Hire/purchase
Then a lower number:
* Bought with autofinance
* Bought with a bank loan
* Bought on a CC
Very few (if any) are bought in cash. I remember my father (who has never been a rich man) buying his car in cash, (£10,000 in 1996) with the plan that this would last him. It did for 13 years.
I was shocked when my brother bought a new van recently - but at less than £200 a month, it worked out less than buying a banger and having to fix it - he needed a van for his job, so can't afford to have a day or days without a working vehicle. I think that is what it comes down to for most people who do buy new. 'Perception' of vehicle less likely to breakdown.
It’s relative to whatever else you want to spend your money on. I spent $90k on my recent car because I love cars, and this was a relative deal (it was worth $110k) with decent resale value.
I have friends that have spent $140k on their Tesla model X, or $190k on their Porsche 911 Turbo. That seems too high for me. Shrug. Everyone is different in their priorities. Most of these are leases where they’re paying maybe $5k a month. When you make $300-400k a year or more with current low rates it’s not terrible.
> Most of these are leases where they’re paying maybe $5k a month
a fully optioned 911 turbo S lease is about $2900/month. most high end 911's lease around $2000/month. most high end bmw's and mercedes sedans (M, AMG, etc.) lease around $1500/month.
these leases are usually tax deductible for business owners and consultants (1099, K1, etc).
and you're right, the problem with HN is some people just have no idea how much money people in technology are really making. these lease payments are a drop in the bucket compared to personal earnings or, more to the point, a successful small business' revenue.
Because they can, and because they want to. If a $50,000 car is 200X your income, that's one thing...if it/s 1/20 your income, it makes the [emotional] decision much easier to rationalize.
Further, that $50k is being more and more hidden in things like low-mileage leases, so it doesn't FEEL like that...it only feels like $400 a month and you get a new car in 3 years...but nothing to show for it after the fact.
I wouldn't spend that kind of money unless I had fuck you money in the bank, knowing full well they depreciate half their value after the first year (although as an aside: I don't know if that's the case with Tesla cars, less moving complicated parts so less wear and tear. Apple computers and phones depreciate notably less quickly than their competitors, too).
However, I work for a company that offers a lease budget, meaning I am actually able to drive a $35K car at a small bump in taxes (that is, a percentage of the value of the car is added to my annual income and taxed as income tax accordingly. I get free fuel from work though otoh so it's a good deal).
Especially in Europe and / or my segment of work, lease cars are a huge market - tens of thousands of cars - and Tesla will make a HUGE impact on that once they become available over here. Europe and my country are much more suitable for electric cars too, in that distances are generally much lower.
>> A used car from a fairly reputable source can be had...
EVERY used car was once a new car. How many times do you think a car gets sold? Perhaps 3 or 4 including the original new sale? If so then 25 percent of car sales are new car sales. Another thing to consider is the resale price of a car. With an old used car you may think you'll drive it until it's used up and junk it, while the previous owners kept it until it was "used up" in the sense that they sell it and get some money for it.
Sure new cars are generally over prices, but TCO is still an important consideration.
We bought a Model 3 last week because we wanted to support a car company that was all-in on EVs and sustainable technology. We feel climate change will be the defining event of our generation and we want to support technologies and companies that seek to reduce our carbon footprint and combat climate change.
Most auto companies like GM and Ford are producing EVs to meet regulations that they're actively trying to get rid of. Others like VW are only doing it as part of legal settlements. Supporting them financially would be potentially to our benefit and not the planet as given the opportunity they'd dump EVs and go right back to the ICE. The remainder aren't investing in technology, they're just licensing it from the big 3.
We needed a larger sedan and considered hybrids like the Accord or Camry but older models only have efficiencies comparable to small sedans like the Corolla where as the 2019 models see much higher gains. Additionally the hybrid models are a premium approaching the $40k range.
With the full Federal Tax credit, the Model 3 we bought will cost around $44,000. This is the first new car either of us has bought and while it's a non trivial cost, it's something we can easily afford.
I've found uber and potentially renting a car is more cost efficient to owning a car and paying parking. I drive so little my car was collecting dust. I still have insurance to drive but that is half of what it used to be. Plus I hate driving in congested traffic.
I used to be a used car person, then after I got my first new car I became a new car person. When I get a new car, it is still a new car to me even after 10 - 15 years. My previous new vehicle cost just over 20K, and lasted about 15 years.
When I bought used cars, in the 2-5K range, they would last about 3 years before I felt I needed to trade them in, and I'd be constantly working on them. A new car gives me a break for about 8 years or more before I really have to work on them (other than regular maintenance). And that is really nice knowing that I can get in the car in the morning, and have a really high rate of confidence that I'll get to work and get home.
The other thing, having a car from day 1 means that I know how it was maintained. The biggest item is having it garage kept, keeps the morning dew off it and therefore have fewer problems with internal components (and rusting) over time.
I paid $5000 for a 2001 GMC 2500 with a lift gate and 56k miles. There are some dents and surface rust, but the truck is generally solid. Crank windows and only one working speaker. I call it my luxury vehicle because I have the luxury of not worrying about it.
I will be supplementing this with a 10+ year old hatchback for better gas mileage and less wear on the truck. I'm expecting to pay around $5k for that too.
I've always wondered this, too. The most expensive car I ever bought cost $14K. It was really nice while I had it, but the loan and insurance payments added up to more than $500/month. With a car old enough I can pay for it outright, insurance only costs about $90/month, and even budgeting for $1000-$2000 in repair work every year I'm coming out significantly ahead.
Buying a new car seems like such an unreasonably expensive luxury that I am genuinely surprised there are enough people wealthy enough to keep the industry going.
Completely agree my friend! After taxes, insurance, principal balance on the car, and routine maintenance, my beater as described above is running me at $175 a month.
I know so many people who have a car that's costing them over $600 a month all in. That really confuses me, because that's just about the price of a bedroom in our area.
It is entirely feasible to live on $1000 to $1500 a month here as a single person and bank the difference in salary without feeling like you are truly being frugal!
Most people aren't trying to minimize their transportation costs though, in the same way that people aren't trying to minimize their housing costs when buying a house. People get the nicest car, and biggest house, that they can afford. If you have a long commute, I think it makes sense to get a pretty nice car, considering how much time you spend in it, and how annoying it is to have your car break down or need repairs at random times.
The posts about how doomed they were did seem a bit severe to me. But on the other hand Musk acts like such a dingus these days it can be hard to know what to think.
Shouldn't we wait for the fully audited FY2018 results before making these bold claims? I feel with Tesla it is always swinging to the extremes.
You could do a lot of accounting magic to make one quarter appear great, but it will show up in the full year's numbers. We have to remember that they have a lot of churn in the financial department, for example the CFO left in April (see https://www.business-standard.com/article/companies/elon-mus... )
I agree Earning and cash flow can be manipulated. To improve cash flow just don't pay your vendors for a quarter. To improve earning you can shift they delivery time from 1q to another. It did look AP went up for Tesla by about 500mil so did AR which is kind of strange, but their Quarter still looked great.
I had the same feeling. Could use an accountant chiming in here.
On the one hand the third quarter update clearly states 'Unaudited' above the statement of operations and balance sheet. On the other hand, they present GAAP-figures. As far as my practical knowledge of working with accountants go, they would frown quite heavily upon using 'new and improved' accounting methods for their Q3-update. Even for 'unaudited' GAAP-figures 'we' (investors) should be able to expect a continuous accounting practices from the firm. But it's good practice to read any statement of an accountant dilligently (ever read an ISAE-statement?) and read non-audited statement with even more caution.
For a public company the size of Tesla, unaudited will be the same as audited. Sometimes in the MD&A, they use adjusted figures because it tells a story differently (maybe more accurately) than un-adjusted GAAP figures.
This seems like a good breakdown - but it's also that Tesla (like SpaceX) runs really really close to the edge every time they do a product launch. How many people doubted SpaceX until the Falcon 9 flew? How many until the Falcon 9 landed on land? How many until Falcon 9 Heavy launched? How many are still doubting until Falcon 9 completes it's first manned mission? How many doubted Tesla until the Roadster shipped? The S, the X? The 3? The low cost 3?
It's still a startup - but Elon's companies move fast and take a toll on everyone.... then one day you look up and rockets are landing on barges, and 60% of world wide lithium battery capacity has been grabbed by Tesla, and Tesla suddenly selling the top sedan by revenue, and the fifth by number of units in the US.
Then competitors have to start working and playing like Tesla and SpaceX - the companies have to become more startup like. You can see this in how ArianneSpace and ULA are trying to get to their next generation of vehicles (which won't be competitive in terms of re-usability) and by the increasingly hyperbolic VW statements about "delivering a car as good as any Tesla at half the cost" this morning....
Tesla and SpaceX have multi-year advantages - they have the super charger networks, they have the only facility capable of cranking out the amount of batteries that electric cars need, reusable rockets, dominating market share over all other luxury cars in the wealthiest market in the world, which happens to show signs of becoming more "European", as in much larger luxury market segment then there is in the United States..
It's definitely taken a hit on people's sanity - but you suddenly look up, and the competitive grounds have changed dramatically.
> hyperbolic VW statements about "delivering a car as good as any Tesla at half the cost" this morning.
This while launching yet another compact SUV, based on the Polo platform w/o 4wd and the the base model using a three-cylinder one liter engne. Give me a break VW.
Musk plays fast and loose like he's almost asking for failure. The amount of blog posts and confused short-sellers because of this one fact have been truly entertaining/infuriating to watch.
Like when everyone thought they had won by removing him from the board of Tesla. Musk could eat Ramen in a 400sq ft apartment without a cent to his name, scheming on his next startup, and still be happy. They are fighting a strawman to death.
You can't win against this guy until you prove him wrong. Either they can't or aren't incentivized to do so, so he still wins.
The problem is that he plays like he has nothing to lose.
He has a vision and a plan and he is willing to put everything on the line and sacrifice it all in the pursuit of that objective. He's a problem solver. He's not scared of being unpredictable. He's creative as fuck. He will do whatever he has to do to achieve his vision.
He didn't make his plan haphazardly or on a whim. He made it having observed millions of other people play this game and seeing how the market reacted to their playbooks. He developed his own playbook based on what he's seen win and lose thousands of times in the past 50 years.
If anyone thinks he didn't study every other car manufacturer intensely before he decided he could do a better job, they're foolish. Musk is an intelligent man. He doesn't go off half cocked just because he's an arrogant fucker (although, I'm not arguing that he isn't), he sees a path that nobody else is seeing and he's steering his companies along that path to greatness and profit by changing the world for the better.
"It’s one of the characteristics of a leader that he not doubt for one moment the capacity of the people he’s leading to realize whatever he’s dreaming." - Benjamin Zander
You cannot fight and win with someone like that. That's the kind of mentality that will either change the world for the better or destroy it. You'd better hope he's on your side.
Even if all his companies crash and burn, he has taken a lot of resources and spent them on things that matter: space exploration, combating global warming, etc
No matter what happens, all that engineering talent will continue to exist. All that experience gained still exists. And some of the giant infrastructure that he’s built will inevitably be reused if his companies don’t work out.
I feel like he’s exploiting the capitalist system to get stuff done, and I think he is prepared for everything to collapse because much of what he has created will survive no matter what. Who cares about the numbers on some balance sheet now that we can reuse spacecraft and build great electric cars? Those numbers are a drop in the ocean anyhows.
Agreeing with both of you but want to chime in with some conspiracy theory stuff.
The only way you beat Musk is by going somewhere that his idealism won't allow him to go, while still maintaining positive public opinion of yourself as his competitor.
I am looking directly at the Oil and Big Auto companies when I say people have incentivized bloggers (aka "journalists") and paid online trolls to make him look like the bad guy, and that they will likely then go a "step too far" in order to beat him. His Twitter tirades have either been a poor attempt at refuting this, or a game of chicken on that front as well.
Oil and Big Auto do have something to lose. Musk's bet is also on human goodness, that greater society will allow him to win because he is genuine. That whole "the truth will come out" or "good always wins in the end" trope.
One could easily see him in an orange jumpsuit one day just for daring to upset industries that have created so much evil.
The issue with that trope is that while Musk's bet on good always winning in the end, that may not be for many generations.
We're still fighting for an equality that's been fought for thousands of years. Fanatical Muslims fighting against Fanatical Christians as a facade covering a war for resources. Who is good? Who is bad? Are either one really any worse than the other?
I'm hoping that his bet moves us towards a more utopian society.
Sadly, while I'm an optimist, my cynicism prevents me from believing that humanity will allow us to get there.
The winners are the ones that write the history books, while the losers are painted to be evil, if they're even included in the history books at all. Some are even written out of the history books and not taught in schools in the hope that in a generation or two they're forgotten.
Humanity doesn't exactly have a very inspiring track record when it comes to good always winning... in fact, its track record is pretty abysmal.
> I am looking directly at the Oil and Big Auto companies when I say people have incentivized bloggers (aka "journalists") and paid online trolls to make him look like the bad guy
They made him spout off about the Thailand-based diver being a paedophile? He bought this stuff on himself, you don't need a conspiracy to explain why the shine came off.
I'm no expert on Tesla's economics, but on the "running close to the edge" point I would think it's not about being forced to be there, it's just the leadership trying to innovate as much as possible for each of its products -- the result of which being close to the edge is. In other words: they could have spent much less -- but why not do as much as possible if you know you'll survive. This strategy might, of course, back-fire if you fly too close to the sun but thus far it apparently hasn't. And now is payoff time I guess :)
I'd love to see Tesla succeed, but cynical part of me thinks that old stogy BigAuto is simply watching them and taking notes. Waiting for Tesla to take all the arrows and blaze the trail, and then they'll swoop in and copy once Tesla's done all the hard work for them. They're not creative enough to do a Model 3, but once the formula looks sound, they can slap together a half-assed version and flood the market with it.
Tesla is already ~2% of US car sales based on their current rate. BigAuto does not have that much room to swoop in and they don't have much time as they need vast infrastructure for battery manufacturing or a charging network among other things. My guess is we are going to see a round of car companies fail as not all are going to make the jump.
Considering they don't sell pickup trucks, vans, etc things look even worse for existing companies. Who also have legacy concerns like dealerships and pension obligations dragging things down.
PS: ~30k/month * 12 months / (0.02) = 18 million per year. (Though not all these sales are in the US.)
I heard the same arguments about SpaceX though. Building new cars are large, complex engineering projects, that have insane complexity around operations, manufacturing and technology. Plus things like Brand awareness and identity.
So image that GM wants to really compete with Tesla. They want to go Electric only. How do they:
1) Deal with dealers - which aare independent, and have their own view as to the product mix?
2) Develop efficient batteries and capacities - Tesla has a insane percentage of this capacity right now.
3) Deal with their unions, who definitely have a opinion about things, and are not going to let the company try anything new without their blessing and buy in?
4) Change their marketing image / brand identity?
5) Develop a electric drive-chain that is as efficient as what Tesla has?
6) Develop a network of chargers?
All without taking their current business model?
Note, VW really is trying to do it this way, and I am very skeptical. There are already a lot of signals that their plans are foundering despite a lot of hype around their battery contracts for example, they had to change tact yesterday and announce their own Giga-factory. Nevermind that VW's brand in the US is just slightly north of Enron's.
That's the US, but the charger network argument for example looks very different in Europe or China.
And while Tesla has a good share of current capacity, the amount of capacity that is being built and will come online in China over the next few years is many times larger than what we have right now. Further, while European manufacturers and industry threw away a healthy position in battery R&D over the last decade or so, there is every indication that they are correcting this mistake. Whatever is going to succeed as the post Lithium-Ion tech might well not come out of Teslas labs.
I'm not convinced about the multi year advantage. Everyone else has EVs out. They are not pushing them, probably because they are reaping the profits on past ICE investments, but the next tech platforms under development for years now at VW/Mercedes/BMW are electric.
VW is planning to get to 10 million EVs by 2022. I'd give credit to Musk and Tesla for bringing forward this point by several years, but it would be silly to write that goal off as empty bluster. (After all they have been selling a well reviewed plug in electric vehicle since 2014, even if no one ever heard about it, and it was priced relatively high. Maybe so as to not interfere with ICE profits).
But no one else is mass producing EV's. VW is just starting to talk about building a gigafactory. Everyone is doing a lot of talking, but they are all years behind Tesla. And even if they stop talking and start doing, they'll need to build a more compelling product than Tesla. That will be very very difficult. Tesla FTW.
"Chinese sales of domestically-built new energy vehicles in 2017 totaled 777,000 units"
To first approximation none of these were Teslas. EVs are being mass produced.
Mass producing a car might be difficult. But the others manufacturers are already doing that.
They need to figure out how to mass produce electronic drive trains (vastly simpler than what they are building now) and batteries. Batterys are more complex, but most of battery production coming online in the next years is Chinese. Tesla is a fraction of what the Chinese are bringing online.
I don't see any reason why Teslas long term potential should be higher than, say BMWs. Mind you, creating a BMW size company from scratch while driving the electric transition and a pace faster than we otherwise could have hoped for are amazing achievements.
Responsible cash management and investor relations are not mutually exclusive with innovation. There is absolutely no reason that TSLA shouldn't have raised cash with a relatively inexpensive bond issuance or moderate share issuance in the lead-up to the large expenditures required to begin Model 3 production.
As a consequence of this, analysts rightly discounted TSLA's stock price to account for the tremendous amount of risk he was taking by operating with little-to-no room for error. The fact that he was able to operate inside of that slim margin does not indicate that he should have.
Elon himself was so flustered by the consequences of his poor cash management (and resulting discount in the stock price) that he ended up plainly manipulating the stock price and nearly got himself banned as a D&O of a publicly-held company.
I'm tired of all of this hero-worship, and the smug "this is what it takes to change the world" discussion around his insane actions. The innovation and change brought about by the Model 3 is not a good excuse for Elon nearly killing the company to maintain his pride.
Last, the fact that raising money to ensure the financial stability of the company is seen as a pride-diminishing act by Elon is in itself worrying.
> As a consequence of this, analysts rightly discounted TSLA's stock price
TIL some of the wildest, most speculative short selling in history is "rightly discounting" a stock price.
That's revisionist. I mean, yes, you're right that they could have operated more in line with traditional accounting. But that's not why their stock price was held incorrectly low.
There were plenty of reasonably thought-out cases to short Tesla, and there may still be. The company has had numerous recent instances where they've failed to pay vendors and their runway was shortening at a concerning pace. These are legitimate reasons to short a company's stock if you find them persuasive.
I don't disagree that there was some wild speculation, sensationalistic articles, etc., but that doesn't make all short sellers wrong for believing that the price is inflated.
Last, who's to say that the price was incorrectly low? Was it incorrectly high before? Is today's price the right price? I do not believe that there was some conspiracy to artificially depress the price of the stock if that is what you mean.
There is absolutely no reason that TSLA shouldn't have raised cash with a relatively inexpensive bond issuance or moderate share issuance in the lead-up to the large expenditures required to begin Model 3 production.
Well, apart from the fact that TSLA already has $10b of Debt to pay back over the next few-to-ten years. I believe Tesla did borrow heavily to begin Model 3 production, but then production took longer than expected to get off the ground and Musk decided it was now or never and that they would try to break even with what they had rather than taking on even more debt. At some point they had to demonstrate they could make money, and they've already left it a long time. I'm very glad that it looks like they're going to pull it off.
It is true that his actions were kind of reckless, plus, I agree that the hero worship must stop. He could've done it better, but it is a good sign that it all worked out well.
I also think that this will serve as a base for Tesla. The first few profitable products are the hardest to produce. If they launch an even affordable version, they'll be able to manyfacture in bulk and not he stuck in "production hell".
I don't know if I am mis informed, but I've always thought about the analysts as someone who, I don't know, are kind of traditionalst people. They might not be, that's just my perception.
I'm very happy that Tesla broke even, just look at a few months back. Who would've thought this would happen? I would read an article a day saying Tesla will go bankrupt, but now they are making more number of cars and cash. The main advantage Tesla had was that ither manufacturers are busy milking ICE engines.
JLR recently, said that they plan to go all electric in 2025, they are doing it NOW!!!! I'm an investor in JLR's parent org and its insane that JLR didn't think of this switch before it got burned down due to low sales in China! This is like a governmental response. Slowly and reactionary
There are a number of things here that I would quibble with:
1) There are absolutely reasons you can't raise cash with relatively inexpensive bond insurance, or by equity based capitalization. Investors get unhappy, and your bond ratings degrade. Bonds often are secured, so you can't just shaft investors by driving down the stock price.
2) Tesla's stock price is in no way discounted by standards of car companies - just startups. It's also the most shorted stock on the face of the planet - I suspect that has much more to do with volatility and downward pressure.
3) Your interpretation is "flustered" and "consequences". All sides agree that there were discussions prior to the tweet, but that the statement implied things that it ought not (Funding secured). This was a poor tweet, poorly though out. You bought into the conspiracy theory - that this author debunked - that cash management was a problem, and Tesla was about to go broke, so flustered desperate tweet. I think we can safely discount that, given the current results.
The rest of your argument is basically emotional attacks, so forgive me if I choose to ignore that.
All that said, I think Tesla will benefit by better governance - having a separate chairman role. This is just a good idea for all corporations.
1) I agree that it can cost a material amount to raise money in any manner, be it debt or equity. That said, Tesla was in an okay place to raise money after the success of Models S and X, and had all of the information to reasonably project that spending on Model 3 production would outstrip inflows from existing sales to a degree that could put the company's finances in a relatively precarious state. They were not reasonably inhibited from raising further cash to justify not doing so prior to ramping Model 3 production.
2) You're right, by car manufacturer standards the company is trading at an incredible premium, I should have been more clear. I meant discounted in the sense that "the street" marked their targets on Tesla down from where they had been as a result of these financial concerns.
3) The term "discussions" may even be too strong for the few conversations that occurred prior to the tweet. It was incredibly irresponsible, and it's somewhat difficult to interpret his intent as anything but to manipulate the stock price and punish short sellers.
The author did not debunk the claim that cash management was a problem. Cash management was a problem and may continue to be a problem in the future. Rapid cost-cutting and non-payment to vendors seems indicative of poor cash management to me. Anytime that a company's runway becomes a relevant part of an objective analysis, there are cash issues. Tesla did not need to give cause for investors to call into question its financial stability in order to make the Model 3.
Don't get me wrong, I want Tesla to thrive. It just seems as though many of these issues of financial stability need not have occurred. I agree that better governance is in order and that Tesla and many other organizations can benefit from a greater degree of independent oversight.
I can't be too specific but the conversations I've had with Tesla's competitors show they're terrified.
No matter what competitors say in the press, Tesla is transforming the auto industry in two fundamental ways that traditional car companies cannot adopt quickly. As easy as everyone makes electric cars and online ordering seem, Tesla's competitors are finding this challenging. The auto manufacturers must build a really great electric car and, at the same time, cut out the dealerships.
The next ten years is going to be very interesting.
I'm not sure I'm sold on the perspective that the worst Tesla detractors were actually just misinformed or wrong about the subject, rather than being actively malevolent by trying to gain money by shortselling while funding anti-Tesla articles.
Under current rules, I'm pretty sure it is legal to try and destroy a company by destroying its reputation and maligning its financials and profit by shorting it while you kill it.
That this is allowed seems anti-competitive and takes away from the notion that shorts "make a market healthier by bringing balance."
> Under current rules, I'm pretty sure it is legal to try and destroy a company by destroying its reputation and maligning its financials and profit by shorting it while you kill it.
Yeah, it's legal, but that doesn't mean it's not malevolent.
I think we're in agreement about everything including its malevolence. Destroying otherwise healthy companies does nothing beneficial for the country's competitiveness, so if it could be done carefully, I'd support laws reigning this behavior in.
I think it's still a little soon to call them wrong. I was long TSLA for quite awhile, and have never been short. TSLA still has financial issues. While this quarter was certainly a positive, it remains to be seen if they can keep it going [1].
When it comes to financial investment I try not to be 'anti' anything. I look at what is. The facts still show TSLA having a bumpy road ahead. The next two quarters will really show if things have turned. First we'll find out if this beat was just a timing beat with cash flow and accounts payable. Next, we'll see how the debt payments coming due are covered.
[1] I see a lot of 3's on the road, so I'm starting to lean back towards probably.
The victim complex with this company and the Musk fans is ridiculous.
The company was a financial dumpster fire losing exectives at an alarming rate (they had their Chief Accounting Officer leave after 29 days this quarter). It's just less of a financial dumpster fire now. Their payables increased by more than their earnings and are still more than their cash.
Would you consider yourself financially healthy if you had $3000 between your savings and checking accounts but a $3500 credit card bill (that has been growing QoQ)?
I haven't checked lately how many liens were filed against them but last count I noted was 18 filed this year - vendors aren't getting paid anywhere near terms, this isn't just managing cash - there are still a lot of red flags even if you think (and I would agree with this) the situation seems to be improving.
> With $3 billion in the bank and a growing cash cushion, Tesla won't need to raise any cash to pay off the big $920 million loan that's coming due next March.
Except that there's less in the bank, and that Tesla owes something like $3B to suppliers.
I am not a financial expert, but I'd think that the situation is not as easy as it is depicted here.
Agreed, the article is a very basic and imprecise overview of Tesla's finances, it brings no new insight. The more informed shortsellers and investors go to much more depth. The headline is quite... bold, given that the author doesn't know much about Tesla's finances and corporate finance in general.
By the way, last quarter was a big surprise to everyone, bulls and bears.
I’m skeptical that those are legit numbers and not just the result of pushing off payments to suppliers and booking revenue for cars they haven’t shipped yet.
Tesla in its current form has never had to weather an economic downturn. It will be subject to the same headwinds as any luxury manufacturer. Unlike other car companies that sell luxury, Tesla has no economy model.
Some commenters have noted that they can easily afford the price tag. It might be time to consider the transitory nature of that situation.
Tesla is an amazing company, (because/but) it has put all its eggs in one basket.
What are you talking about? Tesla was founded in 2003, and did in fact have to stomach the major economic downturn in 2008. Was not a great time to be a car company, especially a small start up.
2008 occurred when TSLA was insignificantly small. Most had never even heard of it, and they started selling the roadster in 2008 - by 2012 they sold 2200 cars.
Point being they were small enough that a couple of investors, or Musk by himself, can support the company through the storm.
If the financial crisis would hit today, Musk couldn’t keep it afloat by himself for long and would have to raise serious amounts of capital to keep a company its size.
So no. Tesla, as a serious car company, has yet to live through a financial storm. Not as anything other than a niche vanity project.
There is nothing in this article that suggests any error in the naysayers’ reasoning. None of the analysts were so dumb as to say that Tesla’s massive capital expenditures should be instantly depreciated and were thus worthless. The issue had always been cash flow: Tesla’s cash flow was negative enough that there was a serious risk that they would run out. Fortunately, they seem to have turned the corner without running out of cash first.
I think they still have considerable risks ahead:
- All the Model 3 cars they’ve recently sold represent potential liabilities for repairs. My neighbor’s has spent weeks in for repairs due to poor QC, and is probably a lemon under CA law. Even ignoring the lemon law, warranty repairs are expensive.
- To be worth their valuation, they need to sell massive numbers of cars for quite a few years. In particular, they need to continue leading after their competitors introduce serious EVs. Having driven Teslas and other cars, Teslas have a lot to be desired in terms of interior amenities and controls.
- The NTSB is investigating an autopilot fatality. The liability from that particular fatality is irrelevant to Tesla, but the NTSB could plausibly force a recall of Autopilot. That would be bad for Tesla. (And arguably quite good for transportation safety.)
Sure the math works out so long as each newer and more expensive project/product is well received by the marketplace. That being said, how many times can you bet the company before the coin comes up tails?
If the coin never comes up tails, then TSLA is worth an infinite amount of money. If the coin eventually comes up tails and each project is bigger than the previous one, ruin awaits.
Because a lot of hedge funds make their money on volatility, not growth. They take advantage of the media's need to sell Fables rather than Facts, and jeopardy is an effective plot device.
Heard a great quote (gonna butcher it) - "What people say or what competition is doing at the end of the day does not matter - if the forces allow, it will allow".
193 comments
[ 1.4 ms ] story [ 183 ms ] threadI wonder how profitable this type of 'short opinion piece' journalism is. How much does a journalist get paid to write something like this?
Running some content websites myself which make like $0.001 per visitor, I am surprised this can be sustainable.
>In keeping with a fast growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible. When someone buys the Tesla Roadster sports car, they are actually helping pay for development of the low cost family car.
https://www.tesla.com/blog/secret-tesla-motors-master-plan-j...
They absolutely did. Tesla was a bet on production. They bet the company over the past few months.
They weren’t an Amazon “if we dial it back a bit we can be profitable” case. They were a “if we don’t make enough cars we may not pay our debts” case. They made enough cars. That doesn’t mean the concerns ex ante were unmerited.
I'm not going to get into the exact economics, but Ars writers write about a piece a day, and the average piece gets tens of thousands of visitors. Revenue per article (for most mainstream news site, not just Ars) is significantly better than $0.001 per visitor. High-end advertisers are willing to pay a premium to put their ads next to high-quality content and to know the demographics of the people seeing their ads. None of us is getting rich doing this though!
We're also fortunate to have a significant base of paying subscribers, which makes it easier for us to write in-depth pieces that might not generate enough revenue from ads alone.
First of all, let me say that I liked the article. I am the one who posted it to HN after all.
Maybe "short" was not the perfect word to express what I mean. I mean that the message/idea is kind of short. It's almost like a showerthought "See this chart? It looks like they are in the red all the time. But think of it this way: They build success after success. They could have been profitable ever since Model S. But they keep investing in bigger projects instead.".
Interesting, that the revenue is significantly higher then $0.001 per visitor. Because it looks like the main ad spots are filled with Google Ads. Which I run too. Do advertisers really target specific sites manually via Google Ads? I would have thought they do that algorithmically based on demographic factors.
Why does anyone spend $35,000 - $50,000 on a car? It just feels like a number that is at least 5x too high.
A used car from a fairly reputable source can be had for between $3,000 - $6,000, depending on mileage and cosmetic appearance. My 2005 Ford Focus sedan was $3,000 and should last me about 3 years before I need to make a decision about major repairs, so that's less than $100 a month in ammortized costs.
Are there really hundreds of thousands of people who are making $5,000+ a month necessary to justify the purchase of such an expensive vehicle? I'm not far from that number and most of my money still goes to food and rent.
But the question remains, if everyone who bought new cars kept them for 20 years and drove them a lot, what would the used car market look like?
I've seen people commenting that the money you save on buying new just goes on repairs instead: I don't agree. There's a fashion and entertainment value to driving something that works just as well as a new car but is newer, so the market gets pushed down.
If the aggregate demand goes down for all the cars, prices should also go down across the spectrum (to varying degrees, but still)
Most people don't have 1 hour commutes.
People think used Toyotas are made of gold. You could almost have a different Tahoe (in equivalent condition) for each day of the week at that price point.
Tahoes? Yeah. You're going to put a significant amount of maintenance into an over 100k Tahoe. They're nice vehicles but the maintenance costs are more than I want to pay.
There might be comfort features in a more expensive car someone wants, also, new cars come with warranties. Or even certified used tend to be more recent cars with warranties. Car repair can be one of the more expensive unexpected expenses. Not to mention depending on your commute and job detrimental to your life.
Do you live in an expensive area? Seems likes spending most of your income on food and rent at that income level is high.
If someone makes $250,000+ a year, it's not unreasonable.
"My 2005 Ford Focus sedan was $3,000 and should last me about 3 years before I need to make a decision about major repairs, so that's less than $100 a month in ammortized costs."
That's completely unrealistic. You have some sort of competitive advantage (REALLY know someone trustworthy), or you are delusional. $3000 cars are generally very high mileage, unreliable, in poor condition, etc. Timing belts, suspension components, drive belts, starters, ac compressors, minor electronics, etc tend to start going on these cars.
"Are there really hundreds of thousands of people who are making $5,000+ a month necessary to justify the purchase of such an expensive vehicle? I'm not far from that number and most of my money still goes to food and rent."
I believe a car should be 3 months income at most. So no, I can't justify anything past a $10,000 car.
What I can say for sure is that unless you are a decent mechanic with tools or have GOOD friends / relatives that are, you shouldn't walk around espousing 3k cars. They just cost way too much in time.
You can also buy a basket case for $3,000, so you do need to have a bit of an idea of what to look for (or what to avoid).
It has lasted me 5.5 years now with no maintenance except oil changes.
Where are the resources to learn what I 'need to look out for'?
/r/justrolledintotheshop
Most cheap used cars are pretty junky. That is fine if you want a beater to drive to work and back or if you have mechanic know-how. It's a lot sketchier if you want a car to drive your kids around in or if you want to drive on longer trips where you need reliability.
I'd never waste my money on a new car. My current car is 10 years old and it feels so uncomfortable new. I felt like I was spoiling myself when I bought it.
I work further from home, with a higher paying job, and get home typically around 6:30 pm. Weekends are spent cramming in other household maintenance, recreational activities for the family, etc. So if having that new car (and spending $80 at the dealer every 3 - 4 months for basic maintenance) means having more free time to spend with my family, I feel it is a really good tradeoff.
Having a cheap second hand car available is the result of someone buying an expensive new car. You need the latter to get the former.
My cars generally cost about 300-500 quid. If it breaks I buy another one. I can buy 5 or more of them for your quoted 3K.
Are they as safe as a Model S? No. Are they substantially more dangerous than other things I do in my life? Probably not.
Once things start to break you scrap it and get another one. Done.
I bought a Civic for 325 GBP, changed the tyres for ~150, and drove it around half of Europe, putting 10K miles on it before selling it because I moved in to a city for a while. I basically just treat cars as a 'subscription cost' model rather than any form of capital.
In the US you have the issue that a car might be a hard requirement to get to work. In that case I'd probably just buy two and drive them on alternate days so there's always a backup. You guys seem to have enough land for this to be viable. Still cheap as chips.
> In the US you have the issue that a car might be a hard requirement to get to work. In that case I'd probably just buy two and drive them on alternate days so there's always a backup.
As long as you're not paying almost double insurance, this sounds like a good option. You could even rent the other car out on the C2C rental exchange.
Though yes - insuring 2 cars could be costly - some places offer a multi car discount, some with a device that only charges you when you drive.
That said, in the UK it's hard for me to think of a circumstance in which two cars would be a hard requirement for someone who can't 'afford' a decent car.
Here, you probably live in or close to a city. You might not want to cycle in or get a taxi/bus to work every day, but if your car fails you could probably do that whilst getting another one.
So the second car is only necessary if you live in the country, which is a minority, it's nowhere near as common as the sort of "live 30 miles outside of work with no train station" stuff that happens in the US.
If my car breaks it doesn't really even matter. I use it because it's easier to do big supermarket runs and saves a bit of time here and there; the cost equation works out roughly equivalent to using public transport.
Snow & road salt is not nice to cars.
Here, generally restricted parking exists within 10-15 minutes walk of a train station (to stop people blocking up residential streets when they commute in to town).
So if there's restricted parking, you can get by with one car (or no cars), for the most part.
It's confusing me that you refer to 'parking spaces', that's what I mean by restricted parking - generally anywhere outside of public transport range in the UK is free-for-all - you park at the side of the road. There are no 'spaces', aside from the physical restriction of the length of the road.
Otherwise I had several cars when I was younger, all used, and all of them costing below $6000, without having to spend a fortune on maintenance.
Depends on the other things you do in your life, but statistically, I would say: probably. Rock climbing, assuming you use a proper harness and rope, is significantly less dangerous.
And its not that I'm an outlier or anything, most of my friends have stories in the same ballpark. To be honest I even paid a bit too much due to my inexperience, if you're smart and know the right people you could get a better car at close to half the price.
Geographic variation in pricing not only fully explains the difference but actually leaves me mildly surprised that the difference is so small.
International movement of used cars is a big business, generally from more wealthy countries (where more people buy new cars) to less wealthy ones, but also to cover gaps in the market if there's a disbalance in some sector e.g. a surplus of used vans because of some large company selling them off, or a lack of a particular model that's randomly gotten in fashion somewhere.
I brought it to the mechanic once for a check engine light and I had it back by lunch with a trivial fix for like $150, and other than that am just doing normal maintenance.
I could buy a Tesla or whatever if I wanted to without it really noticeably effecting my immediate position, but from the perspective of my car being an appliance that does its job, I see no reason to spend more than I did, at least until I can get something that I can go to sleep in and wake up 100s of miles away at a beach or ski resort.
There are other ways to incinerate 50k that I'd get more joy out of than buying a car, but even beyond that I'd rather just leave it all in investments to get my capital gains above my expenses as fast as possible.
If you had enough in capital gains to buy the car from just those gains, or if you are a person that is really genuinely going to get $50k worth of joy out of it and make enough that the expense won't add any stress then I would start to not be able to argue with it financially, but I think both of those are very few people.
So if I purchase a car for $3000, I expect to own it for 5 years with minimal problems. There is room for a bad alternator or a starter. But not too many of those over that 5 years. Of course, if I can sell it for $1500 after the 5 years, that's another $1500 I can sink into maintenance and still justify that it cost me < $1000/year.
If I spend $10K, I have to think the car will be reliable for 15 years with ~$5K of repairs along the way.
In the past five years or so I have thought I might need to raise that $1000/year figure to reflect modern practicality. But, surprisingly, I haven't really needed to. Cars are becoming amazingly more durable, and prices in the used car market aren't sky-rocketing the same as in the new car market.
Still, it is time to make the transition to electric. The used electric market is still very immature. I don't want a used Prius. I'm ignorant of how to value used batteries, so I'm not sure what the maintenance costs will be on an 8-year-old Honda hybrid with original batteries. A 10-year-old Tesla is still way beyond $1000/year. To step into this brave new world will probably require me to suspend my $1000 rule until the water settles a bit.
Or I can pick up one more ICE car and stretch it out for 10 more years while things sort... Or compromise and just get a series of 3-4 year clunkers until I'm ready to dive into electric.
Or just bite the bullet and take the plunge now... Or...
https://www.theguardian.com/environment/2017/dec/01/electric...
I also replaced a LEAF with a Tesla. Ever since doing that, my girlfriend has been asking to go back to the LEAF, because it got the job done just fine and wasn't complicated.
It's also an entirely incomplete picture on their financial situation. Maybe they have a paid for living situation so this is their only liability, maybe they don't have any money in their savings account, maybe they don't have a retirement account.
And with Tesla it's probably even more complicated because there are some "feel good" motives to buying an electric car that may outweigh any sane financial decision.
After working with vehicle data for 6 years, I can guarantee that someone who buys a 1-year-old Prius is actually paying less per month than you are for your 2005 Focus.
People who buy brand new cars are obviously paying a huge "drive it off the lot" tax in the form of depreciation, but they know that and think it's worth it. Some people are afraid to buy used, some like to drive a new car.
It's just another example of "it's expensive to be poor". If you can buy a better car, you end up paying less over the course of your owning it.
Of course, that idea breaks down if you buy something unreliable AND expensive. It also becomes fuzzier with luxury cars, since they're expensive to repair.
But a used, super-reliable car that holds value well, like a Prius or a Camry, is generally going to have the lowest total cost of ownership out of the whole spectrum of car options.
I like getting a vehicle with the features I want and the room to haul all my various sports gear. I've bought used vehicles but, generally speaking, I like being able to buy a car with the features I want and basically not having to materially think about maintenance for a very long time. I can't say that I've found the used cars I have purchased to be particular deals in the long run. Car maintenance is one thing I'm willing to pay just not to deal with as much as possible.
I do think a lot of people spend more on cars than they can/should. I could spend less myself but on an annual basis I'm pretty frugal and haven't had a car payment for many years.
I used to do the whole used car thing, but at this point in my life I spend more to feel safer and to be more comfortable. I still have never spent more than $25k on a car, but I definitely want to drive something that I am confident will not break down.
Good approach...you gotta live a little :-)
For now I love my 40mpg and low maintenance and insurance costs of a 10 year old hybrid Civic.
But you have to think about all the people who buy cars for other reasons...supposed signaling, the impression it gives others, devout brand loyalty, good old consumerism... There's just so many reasons that are "misguided" from a financial perspective, but logical from the personal perspective.
So I’m now considering buying a model 3 in the next 1-2 years. If I can’t make it work financially, I’ll just make do without a car until that changes.
I had previously been driving old cars, which was OK, but I had never bought a new car before, so it was nice from that perspective.
It also had some features that I wanted and do appreciate. Like Bluetooth, USB audio storage, and various safety features. Excellent fuel economy too.
I plan on keeping it 15 years and/or 200K miles, or more, so the amortized cost isn't bad. Given my age, it is likely the only and last new car I'll ever purchase, because I'm sure the driving landscape will be substantially different than it is today.
1) Your TCO (Total Cost of Ownership) for a cheap used car can't be $100/month. If you look at Kelley Blue Book or similar websites, they'll tell you that even super cheap cars like that 2005 Ford Focus will still cost you $300-400/month, all included.
2) I almost died in a car accident two years ago, and a result, I value car security way more than before, which means I wouldn't mind paying $35,000 for a very safe car (assuming I'll be able to afford it).
3) Salaries and wealth are not evenly distributed. Something that looks expensive to you, doesn't for someone else.
My personal econobox, which I've had for a bit over five years, has so far run around 0.17 cents per km, or $155/month, with around 12,000 km/yr. Fixed costs (insurance, registration) add about $75/m.
My last two vehicles were
1. 2005 Chrysler Pacifica. Paid $16,500 in '07. Sold in '17 for $1,900. A few sets of tires, insurance premiums, and (gently) hitting a couple of deer put it around $225/mo over those 11 years.
2. 2009 Pontiac Vibe. Paid $14,500 in '11. Still have it and it's only needed minor repairs (knock on wood). Sitting around $250/mo TCO, but it's still worth a few thousand.
YMMV.
(BTW, I say all of this as someone who finally pulled a trigger on a "Lemur" Model 3 earlier this week).
There is also the practical - when you buy a used car between 3k and 6k, you are basically on the long tail maintenance wise. It's a good bet that the reliability of the car, and the efficiency of the car are both dramatically less then then a new car. I also enjoy snappy acceleration and a car with a low center of gravity. You get into a Model 3, and Internal Combustion Cars just feel like a horrible piece of legacy technology. Could I get away with a old Ford Fiesta or a beat up Civic? Yep - and this is replacing a 15 year old Honda CRV... but I bought that Honda CR-V new, and I have gotten every bit of value from it - and I'm passing it on to family.
Reliability of an old car can be an issue, but if you find a good mechanic, he will go over junky car, fix and replace what is needed, and on top of 3-5k you spend maybe another 3-5k at most. Even better is to have an used car be shopped around up by such a mechanic, but that often requires a friendship on some level. Voila, reliable car for 6-10k, you just need to get a check once a year (shouldn't be costly if initial one was done properly).
I have 15-yer old BMW 3-series, amazing car. Won't change it till it dies/crashes/gets stolen. Fiancee bought before old Toyota Corrola combi for 5k - amazing workhorse. Driving experience is crap compared to BMW, but it just keeps working, consumes nothing (diesel 2l engine). New one costs easily 4x more, for very little added value.
Unless your pay directly depends on you being reliably on time someplace, or you commute over longer distances in some higher white collar job, this is enough.
I would (and in fact, am) taking the Tesla over any of the others, despite my early idea that I would get a BMW. I just didn't like the responsiveness of the car, the clutter and BMW nickle and dimeing me for repairs and things like carplay.
I really liked the Volvo, but the things in the Volvo that I liked - the technology, and the panoramic roof, I could get for cheaper with the Model 3.
I finally pulled the trigger when the Midrange ("Lemur") Model 3 became available. At that point, my out of pocket costs on the Tesla was cheaper then the Volvo and the BMW.
If you have not already tried it - go test drive a model 3. It's a lot of fun.
(Not limited to cars; see the fact that even well earning individuals in the UK, US, etc, could only weather a few months without work because they scale up lifestyle to match).
That, and that many people actually have money. London alone has over 400,000 millionaires by NW, one years' interest on that pays for a Tesla.
This is basically the real answer.
> London alone has over 400,000 millionaires by NW
But that's mostly because of house prices no? Those don't pay interest?
If you own your home outright you're done. Add another 100-200k or so and you're (baseline) retired in a country with healthcare, etc.
After that, do whatever you want with your money, it's fun coupons.
> Are there really hundreds of thousands of people who are making $5,000+ a month necessary to justify the purchase of such an expensive vehicle?
Look around; do you see said cars? There you go.
But I did change my mind and get a Model 3.
* Autopilot is quite nice. I'd compare the experience to driving a car with cruise control as compared to one that doesn't have it. It's not the end of the world, but if you have a car with cruise control, it's tough to imagine intentionally buying your next one without it barring financial difficulties.
* Not having to fill up at gas stations is nice. There's a little more planning involved for trips, but for normal day-to-day, it's waking up every day to a full tank.
* Upcoming software updates. The initial Model 3s didn't have summon or the dashcam feature, both of which have been added over the air, and more of which will be added sooner.
* I think the auto industry in general has become stagnant and "safe" in terms of innovation, and I want to support a disruptive entity that will force the others to re-think the ways they're doing business.
* It's got an API, which already has third party tools for an Apple Watch app, detailed analytics, etc.
* They're taking a risk with the interior of the car, with the lack of gauge cluster and spartan design. To me this looks like what happened when the software industry switched from "as many UI buttons and features as possible" in the '90s to the simplified, "overall user experience" focus we see in modern software. And I want to support that.
* There's some "feel-good" factor to damaging the environment less, and supporting the market that will allow for society to join in.
I agree with you in that I can't imagine spending $63k on a non-Tesla. The differences between a basic used car and a new Mercedes or something just don't justify it. But I do feel differently about the Tesla.
I guess this is fine if you live in California, but a car that I can't operate while wearing heavy mittens is literally unusable to me for nearly half the year.
2. A lot of new cars are purchased with auto loans (44% of Americans are paying an auto loan)
3. The average new car loan amount is going up by a lot (reocrd high of $31,000 now)
4. A lot of people are defaulting (5.8% are > 60 days late, higher than the financial crisis years)
PDF warning https://static.ed.edmunds-media.com/unversioned/img/industry...
Consumers Skip More High-Rate Auto Payments Than During Crisis
https://www.bloomberg.com/news/articles/2018-05-14/consumers...
So to answer your question seriously, people take out auto loans and lease expensive cars because they like buying expensive things, even if they can't really afford it.
Yes, I know most of electricity is still generated from fossil fuel sources. But baby steps.
Btw, I ended buying a Honda Insight.
Part of the phenomenon may be branding too. Cars are used as a status symbol. It’s not necessarily used to broadcast that you’re a “better” person than others, but maybe that you have “good taste” and “can afford it” (think something like expensive designer handbags but more functional).
And some people are just dopes who spend money or go into debt with thinking about it. They’re financially illiterate. These are people who make emotional purchases and feel very excited and happy about their new car, who gripe about their debt two months later when reality sinks in. I feel bad for them.
All in all I am still buying second hand cars but the investment into new cars is not what it seems at first.
That said a number seem to be:
* Company cars * Bought as part of 'own company' * Leased * Hired * Hire/purchase
Then a lower number: * Bought with autofinance * Bought with a bank loan * Bought on a CC
Very few (if any) are bought in cash. I remember my father (who has never been a rich man) buying his car in cash, (£10,000 in 1996) with the plan that this would last him. It did for 13 years.
I was shocked when my brother bought a new van recently - but at less than £200 a month, it worked out less than buying a banger and having to fix it - he needed a van for his job, so can't afford to have a day or days without a working vehicle. I think that is what it comes down to for most people who do buy new. 'Perception' of vehicle less likely to breakdown.
I have friends that have spent $140k on their Tesla model X, or $190k on their Porsche 911 Turbo. That seems too high for me. Shrug. Everyone is different in their priorities. Most of these are leases where they’re paying maybe $5k a month. When you make $300-400k a year or more with current low rates it’s not terrible.
a fully optioned 911 turbo S lease is about $2900/month. most high end 911's lease around $2000/month. most high end bmw's and mercedes sedans (M, AMG, etc.) lease around $1500/month.
these leases are usually tax deductible for business owners and consultants (1099, K1, etc).
and you're right, the problem with HN is some people just have no idea how much money people in technology are really making. these lease payments are a drop in the bucket compared to personal earnings or, more to the point, a successful small business' revenue.
Further, that $50k is being more and more hidden in things like low-mileage leases, so it doesn't FEEL like that...it only feels like $400 a month and you get a new car in 3 years...but nothing to show for it after the fact.
However, I work for a company that offers a lease budget, meaning I am actually able to drive a $35K car at a small bump in taxes (that is, a percentage of the value of the car is added to my annual income and taxed as income tax accordingly. I get free fuel from work though otoh so it's a good deal).
Especially in Europe and / or my segment of work, lease cars are a huge market - tens of thousands of cars - and Tesla will make a HUGE impact on that once they become available over here. Europe and my country are much more suitable for electric cars too, in that distances are generally much lower.
EVERY used car was once a new car. How many times do you think a car gets sold? Perhaps 3 or 4 including the original new sale? If so then 25 percent of car sales are new car sales. Another thing to consider is the resale price of a car. With an old used car you may think you'll drive it until it's used up and junk it, while the previous owners kept it until it was "used up" in the sense that they sell it and get some money for it.
Sure new cars are generally over prices, but TCO is still an important consideration.
Most auto companies like GM and Ford are producing EVs to meet regulations that they're actively trying to get rid of. Others like VW are only doing it as part of legal settlements. Supporting them financially would be potentially to our benefit and not the planet as given the opportunity they'd dump EVs and go right back to the ICE. The remainder aren't investing in technology, they're just licensing it from the big 3.
We needed a larger sedan and considered hybrids like the Accord or Camry but older models only have efficiencies comparable to small sedans like the Corolla where as the 2019 models see much higher gains. Additionally the hybrid models are a premium approaching the $40k range.
With the full Federal Tax credit, the Model 3 we bought will cost around $44,000. This is the first new car either of us has bought and while it's a non trivial cost, it's something we can easily afford.
When I bought used cars, in the 2-5K range, they would last about 3 years before I felt I needed to trade them in, and I'd be constantly working on them. A new car gives me a break for about 8 years or more before I really have to work on them (other than regular maintenance). And that is really nice knowing that I can get in the car in the morning, and have a really high rate of confidence that I'll get to work and get home.
The other thing, having a car from day 1 means that I know how it was maintained. The biggest item is having it garage kept, keeps the morning dew off it and therefore have fewer problems with internal components (and rusting) over time.
The answer is simple. People are different. Some prioritize travel. Some prioritize Home-ownership; and some require a nice car.
You are neither a genius nor frugal. Different people will have different priorities.
I will be supplementing this with a 10+ year old hatchback for better gas mileage and less wear on the truck. I'm expecting to pay around $5k for that too.
Buying a new car seems like such an unreasonably expensive luxury that I am genuinely surprised there are enough people wealthy enough to keep the industry going.
I know so many people who have a car that's costing them over $600 a month all in. That really confuses me, because that's just about the price of a bedroom in our area.
It is entirely feasible to live on $1000 to $1500 a month here as a single person and bank the difference in salary without feeling like you are truly being frugal!
You could do a lot of accounting magic to make one quarter appear great, but it will show up in the full year's numbers. We have to remember that they have a lot of churn in the financial department, for example the CFO left in April (see https://www.business-standard.com/article/companies/elon-mus... )
On the one hand the third quarter update clearly states 'Unaudited' above the statement of operations and balance sheet. On the other hand, they present GAAP-figures. As far as my practical knowledge of working with accountants go, they would frown quite heavily upon using 'new and improved' accounting methods for their Q3-update. Even for 'unaudited' GAAP-figures 'we' (investors) should be able to expect a continuous accounting practices from the firm. But it's good practice to read any statement of an accountant dilligently (ever read an ISAE-statement?) and read non-audited statement with even more caution.
It's still a startup - but Elon's companies move fast and take a toll on everyone.... then one day you look up and rockets are landing on barges, and 60% of world wide lithium battery capacity has been grabbed by Tesla, and Tesla suddenly selling the top sedan by revenue, and the fifth by number of units in the US.
Then competitors have to start working and playing like Tesla and SpaceX - the companies have to become more startup like. You can see this in how ArianneSpace and ULA are trying to get to their next generation of vehicles (which won't be competitive in terms of re-usability) and by the increasingly hyperbolic VW statements about "delivering a car as good as any Tesla at half the cost" this morning....
Tesla and SpaceX have multi-year advantages - they have the super charger networks, they have the only facility capable of cranking out the amount of batteries that electric cars need, reusable rockets, dominating market share over all other luxury cars in the wealthiest market in the world, which happens to show signs of becoming more "European", as in much larger luxury market segment then there is in the United States..
It's definitely taken a hit on people's sanity - but you suddenly look up, and the competitive grounds have changed dramatically.
This while launching yet another compact SUV, based on the Polo platform w/o 4wd and the the base model using a three-cylinder one liter engne. Give me a break VW.
Like when everyone thought they had won by removing him from the board of Tesla. Musk could eat Ramen in a 400sq ft apartment without a cent to his name, scheming on his next startup, and still be happy. They are fighting a strawman to death.
You can't win against this guy until you prove him wrong. Either they can't or aren't incentivized to do so, so he still wins.
He has a vision and a plan and he is willing to put everything on the line and sacrifice it all in the pursuit of that objective. He's a problem solver. He's not scared of being unpredictable. He's creative as fuck. He will do whatever he has to do to achieve his vision.
He didn't make his plan haphazardly or on a whim. He made it having observed millions of other people play this game and seeing how the market reacted to their playbooks. He developed his own playbook based on what he's seen win and lose thousands of times in the past 50 years.
If anyone thinks he didn't study every other car manufacturer intensely before he decided he could do a better job, they're foolish. Musk is an intelligent man. He doesn't go off half cocked just because he's an arrogant fucker (although, I'm not arguing that he isn't), he sees a path that nobody else is seeing and he's steering his companies along that path to greatness and profit by changing the world for the better.
"It’s one of the characteristics of a leader that he not doubt for one moment the capacity of the people he’s leading to realize whatever he’s dreaming." - Benjamin Zander
You cannot fight and win with someone like that. That's the kind of mentality that will either change the world for the better or destroy it. You'd better hope he's on your side.
Even if all his companies crash and burn, he has taken a lot of resources and spent them on things that matter: space exploration, combating global warming, etc
No matter what happens, all that engineering talent will continue to exist. All that experience gained still exists. And some of the giant infrastructure that he’s built will inevitably be reused if his companies don’t work out.
I feel like he’s exploiting the capitalist system to get stuff done, and I think he is prepared for everything to collapse because much of what he has created will survive no matter what. Who cares about the numbers on some balance sheet now that we can reuse spacecraft and build great electric cars? Those numbers are a drop in the ocean anyhows.
For that, I take my hat off to him.
The only way you beat Musk is by going somewhere that his idealism won't allow him to go, while still maintaining positive public opinion of yourself as his competitor.
I am looking directly at the Oil and Big Auto companies when I say people have incentivized bloggers (aka "journalists") and paid online trolls to make him look like the bad guy, and that they will likely then go a "step too far" in order to beat him. His Twitter tirades have either been a poor attempt at refuting this, or a game of chicken on that front as well.
Oil and Big Auto do have something to lose. Musk's bet is also on human goodness, that greater society will allow him to win because he is genuine. That whole "the truth will come out" or "good always wins in the end" trope.
One could easily see him in an orange jumpsuit one day just for daring to upset industries that have created so much evil.
We're still fighting for an equality that's been fought for thousands of years. Fanatical Muslims fighting against Fanatical Christians as a facade covering a war for resources. Who is good? Who is bad? Are either one really any worse than the other?
I'm hoping that his bet moves us towards a more utopian society.
Sadly, while I'm an optimist, my cynicism prevents me from believing that humanity will allow us to get there.
The winners are the ones that write the history books, while the losers are painted to be evil, if they're even included in the history books at all. Some are even written out of the history books and not taught in schools in the hope that in a generation or two they're forgotten.
Humanity doesn't exactly have a very inspiring track record when it comes to good always winning... in fact, its track record is pretty abysmal.
They made him spout off about the Thailand-based diver being a paedophile? He bought this stuff on himself, you don't need a conspiracy to explain why the shine came off.
See: Pissbaby richboy who doesn't help the world and is just a jet-setting Tony Stark wannabe.
^ Has nothing to do with Thailand.
Considering they don't sell pickup trucks, vans, etc things look even worse for existing companies. Who also have legacy concerns like dealerships and pension obligations dragging things down.
PS: ~30k/month * 12 months / (0.02) = 18 million per year. (Though not all these sales are in the US.)
So image that GM wants to really compete with Tesla. They want to go Electric only. How do they: 1) Deal with dealers - which aare independent, and have their own view as to the product mix? 2) Develop efficient batteries and capacities - Tesla has a insane percentage of this capacity right now. 3) Deal with their unions, who definitely have a opinion about things, and are not going to let the company try anything new without their blessing and buy in? 4) Change their marketing image / brand identity? 5) Develop a electric drive-chain that is as efficient as what Tesla has? 6) Develop a network of chargers?
All without taking their current business model?
Note, VW really is trying to do it this way, and I am very skeptical. There are already a lot of signals that their plans are foundering despite a lot of hype around their battery contracts for example, they had to change tact yesterday and announce their own Giga-factory. Nevermind that VW's brand in the US is just slightly north of Enron's.
And while Tesla has a good share of current capacity, the amount of capacity that is being built and will come online in China over the next few years is many times larger than what we have right now. Further, while European manufacturers and industry threw away a healthy position in battery R&D over the last decade or so, there is every indication that they are correcting this mistake. Whatever is going to succeed as the post Lithium-Ion tech might well not come out of Teslas labs.
VW is planning to get to 10 million EVs by 2022. I'd give credit to Musk and Tesla for bringing forward this point by several years, but it would be silly to write that goal off as empty bluster. (After all they have been selling a well reviewed plug in electric vehicle since 2014, even if no one ever heard about it, and it was priced relatively high. Maybe so as to not interfere with ICE profits).
To first approximation none of these were Teslas. EVs are being mass produced.
Mass producing a car might be difficult. But the others manufacturers are already doing that.
They need to figure out how to mass produce electronic drive trains (vastly simpler than what they are building now) and batteries. Batterys are more complex, but most of battery production coming online in the next years is Chinese. Tesla is a fraction of what the Chinese are bringing online.
I don't see any reason why Teslas long term potential should be higher than, say BMWs. Mind you, creating a BMW size company from scratch while driving the electric transition and a pace faster than we otherwise could have hoped for are amazing achievements.
Tesla owns the patents and innovates only in the battery packs. The battery cell technology is owned by Panasonic.
South Korean, Japanese and Chinese are leading in battery cell technology and not all of them are teaming with Tesla.
They say, as they discontinued production of VW eGolfs.
As a consequence of this, analysts rightly discounted TSLA's stock price to account for the tremendous amount of risk he was taking by operating with little-to-no room for error. The fact that he was able to operate inside of that slim margin does not indicate that he should have.
Elon himself was so flustered by the consequences of his poor cash management (and resulting discount in the stock price) that he ended up plainly manipulating the stock price and nearly got himself banned as a D&O of a publicly-held company.
I'm tired of all of this hero-worship, and the smug "this is what it takes to change the world" discussion around his insane actions. The innovation and change brought about by the Model 3 is not a good excuse for Elon nearly killing the company to maintain his pride.
Last, the fact that raising money to ensure the financial stability of the company is seen as a pride-diminishing act by Elon is in itself worrying.
TIL some of the wildest, most speculative short selling in history is "rightly discounting" a stock price.
That's revisionist. I mean, yes, you're right that they could have operated more in line with traditional accounting. But that's not why their stock price was held incorrectly low.
I don't disagree that there was some wild speculation, sensationalistic articles, etc., but that doesn't make all short sellers wrong for believing that the price is inflated.
Last, who's to say that the price was incorrectly low? Was it incorrectly high before? Is today's price the right price? I do not believe that there was some conspiracy to artificially depress the price of the stock if that is what you mean.
Well, apart from the fact that TSLA already has $10b of Debt to pay back over the next few-to-ten years. I believe Tesla did borrow heavily to begin Model 3 production, but then production took longer than expected to get off the ground and Musk decided it was now or never and that they would try to break even with what they had rather than taking on even more debt. At some point they had to demonstrate they could make money, and they've already left it a long time. I'm very glad that it looks like they're going to pull it off.
I also think that this will serve as a base for Tesla. The first few profitable products are the hardest to produce. If they launch an even affordable version, they'll be able to manyfacture in bulk and not he stuck in "production hell".
I don't know if I am mis informed, but I've always thought about the analysts as someone who, I don't know, are kind of traditionalst people. They might not be, that's just my perception.
I'm very happy that Tesla broke even, just look at a few months back. Who would've thought this would happen? I would read an article a day saying Tesla will go bankrupt, but now they are making more number of cars and cash. The main advantage Tesla had was that ither manufacturers are busy milking ICE engines.
JLR recently, said that they plan to go all electric in 2025, they are doing it NOW!!!! I'm an investor in JLR's parent org and its insane that JLR didn't think of this switch before it got burned down due to low sales in China! This is like a governmental response. Slowly and reactionary
1) There are absolutely reasons you can't raise cash with relatively inexpensive bond insurance, or by equity based capitalization. Investors get unhappy, and your bond ratings degrade. Bonds often are secured, so you can't just shaft investors by driving down the stock price.
2) Tesla's stock price is in no way discounted by standards of car companies - just startups. It's also the most shorted stock on the face of the planet - I suspect that has much more to do with volatility and downward pressure.
3) Your interpretation is "flustered" and "consequences". All sides agree that there were discussions prior to the tweet, but that the statement implied things that it ought not (Funding secured). This was a poor tweet, poorly though out. You bought into the conspiracy theory - that this author debunked - that cash management was a problem, and Tesla was about to go broke, so flustered desperate tweet. I think we can safely discount that, given the current results.
The rest of your argument is basically emotional attacks, so forgive me if I choose to ignore that.
All that said, I think Tesla will benefit by better governance - having a separate chairman role. This is just a good idea for all corporations.
2) You're right, by car manufacturer standards the company is trading at an incredible premium, I should have been more clear. I meant discounted in the sense that "the street" marked their targets on Tesla down from where they had been as a result of these financial concerns.
3) The term "discussions" may even be too strong for the few conversations that occurred prior to the tweet. It was incredibly irresponsible, and it's somewhat difficult to interpret his intent as anything but to manipulate the stock price and punish short sellers.
The author did not debunk the claim that cash management was a problem. Cash management was a problem and may continue to be a problem in the future. Rapid cost-cutting and non-payment to vendors seems indicative of poor cash management to me. Anytime that a company's runway becomes a relevant part of an objective analysis, there are cash issues. Tesla did not need to give cause for investors to call into question its financial stability in order to make the Model 3.
Don't get me wrong, I want Tesla to thrive. It just seems as though many of these issues of financial stability need not have occurred. I agree that better governance is in order and that Tesla and many other organizations can benefit from a greater degree of independent oversight.
No matter what competitors say in the press, Tesla is transforming the auto industry in two fundamental ways that traditional car companies cannot adopt quickly. As easy as everyone makes electric cars and online ordering seem, Tesla's competitors are finding this challenging. The auto manufacturers must build a really great electric car and, at the same time, cut out the dealerships.
The next ten years is going to be very interesting.
That this is allowed seems anti-competitive and takes away from the notion that shorts "make a market healthier by bringing balance."
Yeah, it's legal, but that doesn't mean it's not malevolent.
But then there were a lot of people - even Tesla fans - who knew the numbers and still worried.
When it comes to financial investment I try not to be 'anti' anything. I look at what is. The facts still show TSLA having a bumpy road ahead. The next two quarters will really show if things have turned. First we'll find out if this beat was just a timing beat with cash flow and accounts payable. Next, we'll see how the debt payments coming due are covered.
[1] I see a lot of 3's on the road, so I'm starting to lean back towards probably.
The company was a financial dumpster fire losing exectives at an alarming rate (they had their Chief Accounting Officer leave after 29 days this quarter). It's just less of a financial dumpster fire now. Their payables increased by more than their earnings and are still more than their cash.
Would you consider yourself financially healthy if you had $3000 between your savings and checking accounts but a $3500 credit card bill (that has been growing QoQ)?
I haven't checked lately how many liens were filed against them but last count I noted was 18 filed this year - vendors aren't getting paid anywhere near terms, this isn't just managing cash - there are still a lot of red flags even if you think (and I would agree with this) the situation seems to be improving.
> With $3 billion in the bank and a growing cash cushion, Tesla won't need to raise any cash to pay off the big $920 million loan that's coming due next March.
Except that there's less in the bank, and that Tesla owes something like $3B to suppliers.
I am not a financial expert, but I'd think that the situation is not as easy as it is depicted here.
By the way, last quarter was a big surprise to everyone, bulls and bears.
Some commenters have noted that they can easily afford the price tag. It might be time to consider the transitory nature of that situation.
Tesla is an amazing company, (because/but) it has put all its eggs in one basket.
Point being they were small enough that a couple of investors, or Musk by himself, can support the company through the storm.
If the financial crisis would hit today, Musk couldn’t keep it afloat by himself for long and would have to raise serious amounts of capital to keep a company its size.
So no. Tesla, as a serious car company, has yet to live through a financial storm. Not as anything other than a niche vanity project.
I think they still have considerable risks ahead:
- All the Model 3 cars they’ve recently sold represent potential liabilities for repairs. My neighbor’s has spent weeks in for repairs due to poor QC, and is probably a lemon under CA law. Even ignoring the lemon law, warranty repairs are expensive.
- To be worth their valuation, they need to sell massive numbers of cars for quite a few years. In particular, they need to continue leading after their competitors introduce serious EVs. Having driven Teslas and other cars, Teslas have a lot to be desired in terms of interior amenities and controls.
- The NTSB is investigating an autopilot fatality. The liability from that particular fatality is irrelevant to Tesla, but the NTSB could plausibly force a recall of Autopilot. That would be bad for Tesla. (And arguably quite good for transportation safety.)
If the coin never comes up tails, then TSLA is worth an infinite amount of money. If the coin eventually comes up tails and each project is bigger than the previous one, ruin awaits.
https://en.wikipedia.org/wiki/Gambler%27s_ruin