Guest post by David Middleton
As someone rather detached from the automotive world — in other words, someone who considers cars to simply be tools and not extensions of identity — the fervor surrounding debates in the industry often seems strange to me.
Why so much psychological investment in the outdated idea that electric vehicles are crap and can’t compete with internal combustion engine (ICE) vehicles? Or, for that matter, the idea that electric vehicles can function as some kind of savior of humanity and preclude the need for fundamental changes to social/industrial systems if anthropogenic climate change is to be limited in any real way?
Ex-GM, -BMW, and -Chrysler exec Bob Lutz is a case in point. It seems like every chance he gets, he goes off on some rant about Tesla, CEO Elon Musk, or electric vehicles in general, rants that often don’t have anything to do with the facts of what he’s discussing.
His most recent rant, on CNBC, featured the claim that: “Tesla supporters are like members of a religious cult. Just like Steve Jobs was worshiped at Apple, it’s the same way with Elon Musk, who is seen as a new visionary god who promises this phantasmagorical future, a utopia of profitability and volume. The only problem is, Steve Jobs delivered and Elon, God bless him, hasn’t delivered a thing, except increasingly negative cash flow, and an increasing lack of profitability; more and more capital spending.”
Hasn’t delivered a thing? What world is Lutz living in? I’m by no means a fanboy of any kind, and yet I can easily say that no one out there is doing anything similar to what Tesla and Elon Musk have been doing. The all-electric firm has been a wrecking ball to the automotive industry. And its efforts appear to be picking up more and more momentum every year.
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Interestingly, the CNBC coverage, which was published before Tesla’s release of its Quarter 3 2016 results, included this bit: “Tesla is set to report third-quarter results Wednesday after the closing bell. The electric automaker is projected to post a loss of 54 cents per share on revenue of nearly $1.98 billion.”
Well, they weren’t quite right with that “projection,” were they? Whose bets were being set up by those “projections?”
Here are a few more of Lutz’s comments from the interview: “I just don’t see anything about Tesla that gives me any confidence that that business can survive. The last time I checked, (Tesla’s) quarterly cash burn is about $250 million. For a company that size, that’s horrific.”
And: “Every time (Tesla) gets a $500 million injection from a new stock sale or a $750 million injection of new money, it lasts them two or three quarters. This is a problem that volume can’t fix. … If you’re in a variable loss — that is, you’re not recovering labor and materials in your sale price — then doing twice as many, or three times as many, or four times as many (sales) doesn’t help. The losses just get bigger and bigger.”
Since when is Tesla not recovering production costs on its vehicles? Where does Lutz come up with this stuff?
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Define Irony: A cultist ridiculing, in a cult-like manner, a critic of his cult.
Mr. Ayre stipulates to “rather detached from the automotive world” and then zealously defends Tesla from Mr. Lutz’s factual statement:
“Tesla supporters are like members of a religious cult. Just like Steve Jobs was worshiped at Apple, it’s the same way with Elon Musk, who is seen as a new visionary god who promises this phantasmagorical future, a utopia of profitability and volume. The only problem is, Steve Jobs delivered and Elon, God bless him, hasn’t delivered a thing, except increasingly negative cash flow, and an increasing lack of profitability; more and more capital spending.”
The basis of Mr. Ayre’s criticism is the fact that Tesla managed to beat the analysts’ Q3 2016 forecast of “a loss of 54 cents per share on revenue of nearly $1.98 billion” and posted a profitable quarter form only the second time in its glorious history. I would venture a guess that the “automotive world” isn’t the only world from which Mr. Ayre’s is detached.
In three of the past four quarters Tesla fell short of the analysts’ projections, including Q4 2015, when analysts projected a minuscule profit…
More importantly, as the lower panel demonstrates, Tesla’s annual net loss has been growing geometrically. Without a continuous infusion of new capital, Tesla would cease to be a going concern rather rapidly.
Telsa Operating Income (Loss), Thousands of USD
2013 ($61,283)
2014 ($186,689)
2015 ($716,629)
Tesla Cash Flow From Operating Activities, Thousands of USD
2013 $264,804
2014 ($57,337)
2015 ($524,499)
Through Q1 and Q2 2016, Tesla’s operating income and cash flow have also been negative.
The “quarterly cash burn” of $250 million may not he exactly correct, but Mr. Lutz is spot-on here…
“I just don’t see anything about Tesla that gives me any confidence that that business can survive. The last time I checked, (Tesla’s) quarterly cash burn is about $250 million. For a company that size, that’s horrific.”
And here, if you include all operating costs…
“Every time (Tesla) gets a $500 million injection from a new stock sale or a $750 million injection of new money, it lasts them two or three quarters. This is a problem that volume can’t fix. … If you’re in a variable loss — that is, you’re not recovering labor and materials in your sale price — then doing twice as many, or three times as many, or four times as many (sales) doesn’t help. The losses just get bigger and bigger.”
All companies have to include all operating costs when reporting operating income. There is no special accounting exemption for being green.
Mr. Ayre’s laid out the best evidence for the Tesla Cult here…
Why so much psychological investment in the outdated idea that electric vehicles are crap and can’t compete with internal combustion engine (ICE) vehicles? Or, for that matter, the idea that electric vehicles can function as some kind of savior of humanity and preclude the need for fundamental changes to social/industrial systems if anthropogenic climate change is to be limited in any real way?
Clearly he is so deluded that he thinks the climate will behave for Elon Musk and “that electric vehicles can function as some kind of savior of humanity.”
About Telsa’s Q3 2016 “Profit”
One day after Tesla said it earned 71 cents a share, adjusted, in the third quarter, several analysts poked holes in the company’s unexpected profit and revenue beat.
While acknowledging that Tesla had a good quarter, JPMorgan analyst Ryan Brinkman told investors that his team saw “one reason why the [third-quarter] earnings report is not as good as it looks, and another reason why it might not be as good as it looks.”
Brinkman’s issues were both tied to Tesla’s revenue beat. The automaker’s results included just under $140 million in zero emission vehicle credits, which are handed out to companies for selling zero-emission cars. That’s far higher than many analysts had forecast.
The JPMorgan analyst, for example, had expected the automaker to generate a mere $25 million from these credits. Tesla recognized a negligible amount of revenue from ZEV credits in the previous quarter.
Changes the company recently made to the way it reports revenue could be another reason its sales beat analysts’ forecasts by such as wide margin, Brinkman said. Revenue came in at $2.3 billion versus a consensus estimate for $1.9 billion, “even though the approximate number of deliveries in the quarter was known ahead of time.”
“We feel the difference clearly relates more to the change in accounting than it does to [average selling prices],” he said.
Tesla made this change to bring itself closer in line with GAAP accounting standards.
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The difference between the projected loss of $0.54 and an the reported profit of $0.71 per share was $400 million in revenue. $140 million of which was corporate welfare (ZEV credits) and the rest due to lower capital spending and a change in accounting methods.
While I think Tesla’s are really cool toys, engineering masterpieces, and that Elon Musk is a brilliant person, the cult-like worship of the car and the man is one more reason to think that green ribbons are very appropriate for mental health awareness.
Subsidy farming at its worst.
The company is an accounting house of cards.
‘Tesla is not a car, battery, or tech company; it is an experimental financial services company and should be regulated as such.’
Devonshire Research Group, LLC
May 2016
Bingo!
http://devonshireresearch.com/research/Devonshire%20Research%20Group%20-%20Tesla%20Motors%20-%20TSLA%20-%20Public%20Release%20-%20Part%20II.pdf
Yet another step forward for Tesla: improved battery 2170.
https://electrek.co/2016/11/02/tesla-panasonic-2170-battery-cell-highest-energy-density-cell-world-cheapest-elon-musk/
Naysayers gonna say Nay.
Better batteries just keep on appearing.
BioSolar’s battery will take its place in the battery series.
Until the blue bar stops going more negative as the green bar grows, Tesla will remain a government-subsidized Ponzi scheme…
It really doesn’t take much to make a true believer happy.
Any vaporware press release and it’s straight to nirvana.
Can’t afford to spend the time on this entire thread, but I will mention that it seems to me that it is a push between Teslas and conventional automobiles. Power conversion from gasoline to shaft in a conventional automobile is about 25-30%. Power conversion from coal to shaft in a powerplant is about 40%.
But wait! There’s more! Add in the efficiency of conversion to electricity (say 90%), the transformer efficiency (say 95%), the transmission line efficiency (say 90%), and the stepdown transformer efficiency (say 90%), and the AC/DC conversion efficiency (say 90%), we get a system efficiency of about 26% (not accounting for battery discharge inefficiency, etc.). Not much different.
But–but, wait! There’s even more! We have to realize that the Tesla is undoubtedly taking advantage of all the energy-recuperation strategies employed in a hybrid automobile (e.g., recovery of energy in the braking process, no power drain at a dead stop). That being the case, the PROPER comparison should be between Teslas and hybrids. And there, I think the game goes to the hybrid. Musk can easily declare defeat and convert his autos to hybrid, and people would buy them just as handily.
As another interesting point of reference, I once had a conversation with a colleague on the merits of pure electrics vs.gasoline-powered automobiles. I did the calculation, and it turns out that the effective recharge power input to a conventional automobile (pouring gasoline into the tank, as chemical energy per unit time) is on the order of megawatts. Fairly simple and safe, so long as you are using chemical energy, but exceedingly dangerous if you are using electricity. I don’t think there will ever be “fast” Tesla rechargers, on this basis alone. Normal residential power service is not rated this high, I think.
An excellent summary. It’s pretty obvious that the people here extolling Tesla struggle with most engineering concepts (as well as financial ones). It’s probably what prevents their being jet engine designers (thank goodness!).
A UK gallon of petro/gas contains 44kWh, no battery system can compete with that.
The funny thing is that I praised the ingenuity and technology of the Tesla automobiles. I think they are magnificent toys. What I criticized was the cult-like response to any criticism of Tesla Motors business model. We’ve now had 100’s of cult-like comments accusing me of being some sort of Luddite.
The Society of Exploration Geophysicists’ monthly magazine is called The Leading Edge. One step beyond the “leading edge” is the bleeding edge. That’s where you bleed cash on science projects. Tesla is several steps beyond.
Oh, yes. There is almost no way of putting out a lithium fire. You need a class D fire extinguisher, which basically smothers the fire with a metallic frit. (I once jokingly surmised that the only way to put out such a fire would be to douse it with molten metal. I was surprised to find this was essentially true.) I had to mention this point to a friend who owned a Tesla. He quickly got a class D extinguisher to keep with the vehicle.
Lithium will burn oxygen out of water. And out of carbon dioxide. And out of sand (silicon dioxide). And out of rust (ferric oxide). And for God’s sake, don’t repeat the mistake of the Boston airport fire department, who tried to put one out with Halotron (a fluorinated hydrocarbon)–which was like putting out a gasoline fire with a blast of compressed oxygen. They were puzzled that the fire seemed to be getting worse.
“Oh, that’s not likely to happen.” Yeah, and I can say the same thing about house fires. Or cell-phone fires, for that matter. It’s never a problem until it happens. But the public is woefully ignorant of simple matters of chemistry, so they cheerfully fork over money for a risk they don’t understand.
Too fracking funny…
Makes Willy Peter look friendly in comparison… 😉
No lithium metal in a lithium ion cell. My favourite chemistry is a sandwich of pencil lead, bin liner and fertiliser
Dear John,
If the lithium electrode is an intercalated compound, this can be a compound in which lithium is not oxidized (as in lithium carbide). If that is the case, there is plenty of unsatisfied electrochemical potential to drive an exothermic reaction with atmospheric oxygen. (After all, hydrocarbons are normally considered to be stable compounds…but not when they are ignited in the presence of air. Same idea.)
Let’s not forget this model:
Merc and the other western auto makers just don’t get it: EVs are a system of which the car itself is just one element. Tesla have rolled out a proprietary fast charge network that is twice as powerful as any public fast charge standard. They don’t have dealers and there are reasons for that too
Had no one noticed the Bob Lutz is chairman of a company trying to sell a rehash of the Fisker Karma and that he worked for GM until 2010? He is one of Tesla’s competitors. Of course he would talk them down
Now please demonstrate that anything he said is wrong.
Tesla finances are in a state of ‘Smoke and Mirrors’. See this post on ZH a couple of weeks ago.
http://www.zerohedge.com/news/2016-10-26/tesla-earnings-smash-expectations-after-dramatic-change-reporting-methodology
I owned a 2015 Model S (60kWh). I bought it for a couple of reasons:
(1) I’m a tech geek and I like playing with new technology. At the time, I thought of the Tesla as a huge, self-driving iPad.
(2) When I purchased the car, gas was over $4/gallon (premium). I thought I’d save some money on my 100 mile commute (50 miles each way).
Tesla’s stated range for my model was 210 miles, so theoretically I’d be using only half the range and still have plenty of breathing room in case the unexpected happened. After the first month of driving, I started becoming anxious on my way home (mostly Interstate driving). There were times I’d get home and there would by just a few miles left on the batteries. The problem I quickly discovered is that the max range is one of those best case scenarios that was almost impossible to reach in the real world. So, a typical day would be to drive to work in the morning, hitting some stop-and-go traffic on I85. At work, I’d run out a few miles to lunch, maybe a few more miles to see a vendor, and possible run a few more miles to the post office. Then 50 miles back home, usually in some heavy stop and go traffic on the Interstate. Total daily driving was usually around the 130 – 150 miles, so I should have had at least a 60 mile buffer. Unfortunately, there were days I was 5 miles from home and my car would tell me I have around 12 miles of range. Many days on the last few miles to my house or when I was stuck in traffic, I’d get a feeling like one would get if they were in the middle of the dessert in a gas powered car and they’re low fuel light came on and were unsure if there was a gas station in the next 20 miles. It’s a butt puckering experience. The problem is that the range is only 210 miles if the weather is perfect, you don’t have to run the heat or a/c, you don’t use the electronics too much, you’re not in stop and go traffic, and you don’t drive too aggressively.
To solve the problem, I installed a charging station at work. But that was a stop gap decision that really didn’t pay off. For one thing, my company would only allow me to use 110, so charging was slow. For another thing, I had to pay for the charger and an electrician, which cost me a bundle. At the end of the day, it was just not practical. Although I didn’t drive very far after I get to work, I frequently go 5 or 10 miles to a meeting and might be there a few hours. Or I might go 5 miles to lunch and be there for an hour. So, there was very little time to actually charge and it was a pain in the arse to plug in every time I got back from somewhere. It wasn’t much trouble, but gave me a tethered feeling.
In the end, I kept the car 8 months. it was probably the worst financial decision I’ve ever made. The car was very nice, but I should have put a lot more thought into the day to day use of an electric vehicle. It was almost impossible to get rid of. Tesla didn’t want it back unless I traded for a new model. I went to several luxury car dealers trying to make a trade, and they really didn’t want it either. Most offers were $20k to $25k under what I owed. The best deal I got was from the BMW dealer that I had purchased 7 cars from over the last 20 years. I still lost $14k, but I ended up with a new 550i that was loaded for a lesser price than the original car, so that sort of offset the bad feelings.
I’m sure Teslas are great for many people, but at the end of the day you sacrifice flexibility.
You should have towed one of these. “A brilliant solution to a non existent problem” to quote my son.
http://gajitz.com/little-generator-trailer-lets-electric-cars-go-the-distance/
Don’t dismiss all electric vehicles as rubbish. Years ago we had trolley buses which were brilliant but for the problems with the cost of the wires and the booms becoming detached from them at junctions. A friend of mine produced a system he demonstrated for a practical update of the system with a computer controlled pantograph that raised an lowered itself when it detected the wires above it. It was about quarter sized and used for children’s rides but proved the concept was totally practical.
No one was one bit interested especially the eco lot as they were so obsessed with forcing car users to go electric they would not see that public transport was the place where it could be done so easily. It was then I realised it was not about the environment it was about removing individuality and maximising group control. with them of course being in control.