Tag Archives: tesla

Does Tesla Really Lose $4,000 Per Car?

Excellent article that dispels the liberal myth that Tesla is an unprofitable company that is dependent on subsidies.

Although California offers a $2,500 rebate per electric car, this is just a tiny fraction of the sticker price for a Tesla, and the people who are buying are not doing it for the subsidy but instead to project status and for the high performance of the car.

Tesla has profit margins of 25% per car, and similar to the Amazon business model, Tesla is reinvesting its profits to build its infrastructure. Wall St. is aware of this, which is why no one cares that Tesla is cash flow negative.

There is a big difference between losing money for every car sold and spending more money than you make. Considering the profit margin on the Model S is over 25%, Tesla is actually in the latter category. Making the Model S is profitable. Rapidly expanding into a major car manufacturer while making the Model S is not.

*Edit: look at it this way. You want to open a McDonalds. It will cost you $500,000, which you borrow from a bank. The first year you bring in a million dollars in revenue, and make $100,000 profit from sales. However, you borrowed and spent $500,000 opening the store, which means you sort of lost $400,000 that first year.

Would Reuters say you lose $2.00 for every Big Mac sold? I guess so.

The left is so desperate to see Tesla fail, but keep coming up empty-handed each time. Whether it’s imagined regulatory issues or ‘exploitation’ of its drivers, the same for Uber, which keeps defying the left’s insistence that it’s a bubble. All these companies keep rising in value year after year, as their businesses continue to grow despite all the doom and gloom from the media.

Libs Whining About Tesla Again

Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies

Libs complain about crony capitalism only if said companies are successful, such as Tesla or Goldman Sachs, but ignore the failures such as SOlyndra. The left wants the most successful companies to fail, but wants to bailout the losers like General Motors. The same libs who want higher taxes and more regulation suddenly become free market purists when attacking companies like Tesla. To the left, the free market only works one way: for companies, especially high-IQ successful ones, to fail. When a company becomes too successful, the libs go on the attack, with frequent targets being Google & Facebook (privacy concerns), Amazon (taxes), Walmart (wages), General Electric (taxes), Apple (wages, taxes), Tesla (subsidies), Monsanto (pollution), Tobacco industry (cancer), Microsoft (antitrust), Starbucks, Snapchat (for supposedly being a bubble), Uber (for replacing the obsolete leftist cab industry), Goldman & Bank of America (bailouts), and so on…

Even though I lean republican/libertarian when discussing economic issues, given the US government’s access to extremely cheap borrowing, an argument can be made for some ‘soft’ crony capitalism (yeah, I know it’s a dirty word) to allocate resources in ways the free market hasn’t, such as with funding Tesla and other tech initiatives, a famous example being the Federal Aid Highway Act of 1956. Contrary to the oversimplified belief that public allocation and free markets must be diametrically opposed, this allocation system can compliment the free market, creating long-term value through the development of new technologies and services, whereas most entitlement spending programs don’t create long-term investment. That’s also why I support more money for gifted education programs since investing in the best and the brightest possibly one of the best investments any government can make. Tesla is worth over $40 billion – a huge ROI from the $500 million that was lent to them, which Tesla has long since re-paid. Good luck getting that kind of ROI with foodstamps and disability.

Tesla’s Big Surprise. Don’t Bet Against High-IQ.

Tesla stock (TSLA) surged today (and in the after hours) on an announcement of a mystery product line, as tweeted by CEO Elon Musk:

Due to hype and growth potential from the Nevada battery factory, Tesla stock could go to $250 soon*…don’t bet against high-IQ and rich people, as exemplified by Tesla and the booming web 2.0 scene. Unless you enjoy losing money, don’t bet against the fed, free markets, or the consumer. Those who have bet against high-IQ companies like Facebook, Tesla, Google, and Apple have been taken to the cleaners.

To put this theory to test, I compared the 5-year performance of what I perceive to be highest-IQ sector, the QQQ (Nasdaq 100 technology index in purple), and compared it with the lowest-IQ/most ‘blue collar’ one, the energy sector (XLE in green and red).

The two were almost tied, until the oil crash of 2014:

The energy sector is also more volatile, plunging in 2011 due to fears of a global recession stemming from Europe’s debt crisis. Technology, being that it’s not macro-sensitive, held up very well. Although the left goes on about Exxon’s record profits, profit margins for the tech sector are much higher.

So why has the energy sector fared so poorly? It comes down to IQ. Would you rather bet on the Beverly Hill Billy Oil Company or Microsoft? It’s obvious. The reason is two fold: first, low-IQ people (low IQ relative to tech CEOs and employees) gravitate to the most volatile, profit-thin, macro-sensitive industries such as energy, home building, and commodities because they aren’t smart enough to get into high-tech.

Second, because they aren’t smart they have poor common sense, are spendthrift, and incestuous/nepotistic (hiring on ‘people skills’ and family or college connections – not talent and intellect). But what about petroleum and chemical engineers? Yes, they are smart, but tech companies, especially web 2.0 and internet, tend to be staffed entirely by people as smart as engineers, and these smart people directly influence how the company is run. In the low-IQ sectors, the smartest people have little influence on executive operations.

In the Fall and Winter of 2014, the entire energy sector got annihilated as oil plunged $90 to $45, due to over-expansion and leverage. A lot of these energy companies were profitable provided oil was above some threshold (like $70 or so), and they borrowed heavily to expand operations on the assumption oil prices would remain high. This highlights the problem with the blue collar sectors: volatility from macro factors and incompetence/poor planning due to low-IQ management. For example, the CEO of Chesapeake Energy Corporation, Aubrey McClendon, ran his company into the ground as the stock fell from a high of $70 in 2008 to as low as $15, until his resignation on April 1, 2013:

On April 18, 2012, a Reuters report revealed that McClendon borrowed as much as $1.1 billion against his personal stake in thousands of company wells, raising the potential for conflicts of interest and raised questions on the corporate governance and business ethics of Chesapeake Energy’s senior management.[24] On May 1, 2012, Chesapeake’s board announced that an independent, non-executive chairman would be named and that McClendon would relinquish his position as chairman of the Chesapeake Energy board.[25] On February 20, 2013, Dow Jones reported that a Chesapeake board review of millions of pages of documents and more than 50 interviews of Chesapeake and third-party personnel found no improper conduct, no improper benefit to McClendon and no increased cost to the company.[26]

On June 7, 2012, Reuters reported that McClendon had used Chesapeake employees to perform $3 million of personal work, including engineering and accounting support and the repair of his house, in 2010.[27] McClendon’s employment contract expressly permitted such personal services by company employees and provided the formula for reimbursement of associated salary and other company costs.[28] According to Chesapeake‚Äôs proxy statement filed with the SEC on May 11, 2012, McClendon reimbursed the company for all but $250,000 of the employee costs.[19] The Reuters account also stated that McClendon had used corporate planes for non-business-related travel for the McClendons’ family and friends.[27] “For safety, security and efficiency” reasons, McClendon’s employment agreement authorized the personal use of company aircraft by McClendon, his immediate family members and guests.[29]

But you see this divergence of performance not just between low-IQ v.s. high-IQ sectors, but between entire countries. Compared to other nations that are struggling with slow growth, corruption and inflation, one reason why America has done well is because we do have a meritocracy that rewards the best and the brightest, and most policy makers – especially the fed and Republicans – are reasonably competent. There is room for improvement though, in that it wouldn’t hurt to have more high-IQ people in government.

* Disclaimer: I do not own Tesla, and this is not an endorsement to buy Tesla.