The department of energy routinely gives low-interest loans to interesting energy startups because there's a compelling national interest in renewable energy.
So, yeah, we're on the hook for 500m. But we just spent a trillion in Iraq. And when we hit peak oil and hit a point of total supply inelasticity for energy, we're really gonna be up a creek.
There are literally thousands of companies that get these loans. I invested in one called Beacon Power, they build electrical grid stabilizers based on flywheels -- suck in excess power during supply peaks, then spit it back out if everyone turns on their AC units at once. Great idea. Helps the whole economy if they succeed, not just them. So the dept of energy took the long view and threw them a few million dollars as a loan.
All in all, this stuff adds up to way less than 1% of domestic federal spending -- which itself is less than 1/6 of the total federal budget. If a few of them pan out and we reduce our dependence on foreign oil, then it's a win.
If they choose to locate the factory in high-cost California, I have to wonder what's going on. It makes no business sense unless CA has some outstanding tax benefits for green industries.
If you're a small company (500 people for Tesla, apparently), building a never-been-built product and probably encountering lots of kinks along the way, it's probably worth having the factory be local. The high-priced engineers who design the thing can just blast over to the factory while they're figuring out production issues.
Just speculating, of course. But I'm assuming they somewhat know what they're doing, given that they actually built the thing and it actually works. Gotta give them some benefit of the doubt for that.
Another speculative data point, a vehicle like this, the engineering is a much bigger % of the final cost than your standard "build what we built last year" car.. that has to come into the decision as well.
The SEC filing provides the first clear look at the company’s finances. It notes that Tesla has lost "approximately $236.4 million from our inception through Sept. 30, 2009"
From what I understand their inception is 2001, which means they've lost about $30mil/year. That doesn't sound excessive to me at all. Software startups normally count $15k/employee/month as a reasonable expense (including hardware, rent, benefits, etc.) Given how massive the equipment and production expenses for an auto company can be, I wouldn't be surprised if their number is three times as high. At only 500 employees (again, a very small estimate for an auto company) that would put their expenses at 45k/month * 12 * 500 = $270mil/year. Considering that they've lost only $240 mil in eight years, they're doing extremely well.
I can't even imagine the amount of effort and capital required to pull something like this off. If anything, I'm surprised how well they're actually doing so far.
I'm sorry, but losing $30M in one year is bad. Losing $30M for 8 years is excessively bad. Tesla is bleeding cash left and right and its CEO is flying jets to get around while taking in $450M in taxpayer money for loans, and then files for an IPO a week later.
Musk (its CEO) had mentioned that Tesla would be profitable in 2009, and that's clearly not the case. Stating that losing $240 million in 8 years is doing "extremely well" is irresponsible to impressionable investors looking forward to Tesla's IPO.
Well, there's different ways to calculate those numbers. If I had to guess, Tesla was referring to EBITA and the WSJ is calling them unprofitable after interest and taxes.
At any rate, it's ridiculous to try and claim that they don't have a business model. If they're selling the cars for more money than the incremental unit cost, then they do indeed have a profitable business model.
They may not be selling enough of them yet to have a profitable company but claiming that they don't have a business model is just being obtuse.
Are you claiming that in 2001, Amazon had no business model? Because that would be the same thing.
First off - Tesla is profitable or approaching profitability as of this year, per my link earlier. I figured maybe you didn't see that since you didn't address it.
Second, the money that they get from the government is a loan, just like the government, particularly the Dept of Energy, gives to thousands of companies who's research/products have a chance of generating extremely positive externalities for the country. (Last I knew, the whole dependent on foreign oil thing is sort of a big deal)
So what are you against here? What differentiates Tesla from the rest of those companies? If a company had a promising approach towards cold fusion, would you be against a government loan to them as well?
Your statement about VCs needs a citation. Maybe they think the IPO will raise more money for less equity. Maybe they want to do the IPO for other reasons.
Given that they just got a big loan, I doubt they're down to their last 9 million. Unless they spent it all in a week.
If you read the articles about them, they want to introduce another car model which will be a much higher volume business, involving a lot of capital expenditure up front to create the plant. That's a good reason to go IPO rather than another venture round. Higher dollars.
And if you don't buy it? Fine, don't buy the stock. But what's your ax to grind here? Every capital intensive business, including a lot of valley darlings, went through a long money-losing period at the beginning while they ramped up design and production. This is standard. Why the long face?
Now Tesla insiders are leveraging that taxpayer loan to IPO.
Is this free enterprise or just corruption?