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On Elon Musk And Tesla The Art Of Modern Warfare In A Noble

Neither hype, irrational nor a temporary short squeeze appear to explain sufficiently the to a recent fundraiser that was over-subscribed by institutional longs at was then a 52-week high, $1.08 billion for pure automaker Tesla Motors (TSLA ). On closer examination, has many remarkable features set it apart from comparison other businesses, and mark it out for in a way that provides a very and rational underpinning for both its price and for an expectation of future

Tesla Motors Inc.

At the outset, to assess the probability of versus the probability of failure for one needs to go right back to the and look at its core motive, one is not normal for any business because it is not the motive, at least not for its own sake. It and it remains the electrification of transport as a for young and already very man seeking for meaning in an is that all is moment following creation of and its sale to eBay (EBAY ). For Musk, the success of Tesla in a transport revolution is an urgent for human progress and whatever the truth of that may be, for Elon it is a must happen and in the absence of it already it fell to him to make that it does. The strength of conviction since his initial million seed investment in in 2004 has been tested and has proven to out-weigh two marriages, and at one the expenditure of all of his money including the of the proceeds of the sale of PayPal and in a personal guarantee to Wells and US Bank that holds the of ultimate humiliation in the case of the of Tesla to succeed in the form of a to recycle his remaining net worth holdings in SpaceX and Solar to personally buy back as many as of three years of the company’s production as a prelude to personal if it fails.

As a result, Tesla is not a with an ordinary limited risk profile, it is a company guaranteed to succeed by its Chairman, Architect, CEO and largest shareholder Musk. Mr. Musk is personally alongside the company’s remaining in the amount of $170 Million a recent top-up of $100 to prevent the dilution of his control a recent $1 Billion financing

Mr. Musk’s salary from as at 2012 was California minimum of which he accepted only Annually, a conspicuous difference in pay while all other named received salaries well 6 figures. For this reason, others, Tesla is a company despite its normal voting and considerable resource of expertise amongst its executives and board has every appearance of being led by a visionary carrying unsurpassed authority. In summary, unlike a operated by consensus on measures at achieving a purely profit-motivated Mr.

Musk’s status affords him for unfettered control of the direction of that need not countenance any in setting about achieving bold visionary aims.

As a footnote applicable to this The CEO is philosophically long humanity and for reason can be expected to have a malevolence for shorts.

Looking at the Mr. Musk is contracted to the board of Motors Inc. to achieve the milestones set against a total of $31.17 share options of common stock, each to be by a $4 billion uplift in market commencing at $3.2 billion in and achieving a total of $43.2 before 8/13/2022. At the time of this represents a target of uplift in market capitalization the same time period or

Successful completion of the Model X Prototype (Alpha);

Successful of the Model X Vehicle Prototype

Completion of the first Model X Vehicle;

Successful completion of the Gen III Prototype (Alpha);

Successful of the Gen III Vehicle Prototype (Beta);

of the first Gen III Production Vehicle;

margin of 30% or more for four quarters;

Aggregate vehicle of 100,000 vehicles;

Aggregate production of 200,000 vehicles; and

vehicle production of 300,000

If an investor is satisfied that milestones are in all probability achievable, subject to individual due diligence, a long theory of investing in alongside Elon Musk appear to be sufficient rationale to do so.

It is relevant to state that the of Mr. Musk from Tesla by any would require a dramatic of both risk and upside Note that Elon personal victory condition for is significantly greater than the of 300,000 vehicles.

It is to participate in a of producing and triggering collaboration and to achieve a total of 50% of all new car production as vehicles in a timeframe of around 13 Naturally ambition of that brings the potential of both and reward, and it should not go without that the ambition aims to with vested interests on a that at times has been the matter of armed conflict and will likely lead to well-funded and considerable opposition at if approached with insufficient In the view of this author it however appear reasonably that such a consensus be found in the timescale indicated, and that Mr.

Musk may well to be the catalyst and the leader suited to the

The following relates to factors affect the ability or probability of achieving the first set of contracted

The Tesla Model S.

For all of the reasons cited in awards. accolades and Model S is a remarkable vehicle, highly in terms of performance, safety, seating capacity, space, elegance, quietness, economy, and sophistication of infotainment being web-enabled for over-the air and firmware enhancements.

Model S is the embodiment of the correct answer to a question that had previously manufacturers of electric vehicles:

How to the commercial success of a production that takes full of the performance and lifestyle benefits by an elegant but relatively expensive propulsion system?

The answer: To the elegant but expensive electric train in a commensurately valuable of vehicle, a high performance

The Tesla Model S is also for a number of less commented-upon but non-trivial reasons:

The Tesla S. Car 2.0 — and very far beyond.

looking at the Tesla Model S 85 it is normally described factually as a with a range of 265 miles

From a business perspective, an eye to investment, it is much more to decompose it into two entirely items (The Model S and the 85) that differ greatly one another in risk and reward noting that both the low and the high reward component with Tesla:

1. The Model S car (the proprietary of Tesla Motors Inc.).

2. The 85 kWh of cells contained in the Model S mounted beneath the car (the being the proprietary design of Corporation).

The Model S is an award-winning mature production electric with elegant lines, a aluminum body shell and for the most part and the lowest coefficient (0.24) of any current car. A car with superior and power delivered by a highly electric motor that is of outputting an ample 416 hp at 5-8600 rpm and 443 at 0-5100 rpm when supplied electricity. An extremely capable and future-proof design.

The source of at the cell level, however, is by no fixed. Currently, the Model S a Panasonic NCA nickel cobalt (LiNiCoAlO2) cell designed for cycles with minimal in capacity and characterized by superior and power densities when with common commercially alternatives. It is a truly excellent of cell when deployed the Tesla Model S Battery and battery-management systems. A simplistic of 3000 charge cycles x 265 EPA gives an indicative lifetime of miles EPA or 53 years of service at 15,000 miles per year. to take a conservative view at miles to allow some for calendar life limits and factors for degradation in actual this is an enormous figure.

also that the battery system present in the Model S has in respects been designed to cycle life when with the deep-cycle laboratory test conditions. It is anticipated by author that this is intentionally selected to out-last the requirement in the Model S vehicle for reason discussed later in article.

Footnote: While the cell type is certainly fit for in a 265-mile EPA range circa vehicle package, there are two paths of obsolescence for this Panasonic NCA cell that demand its replacement in future batteries:

1. The development of a cell significantly increased energy that permitted a large in the range of the vehicle per unit size and weight.

2. A dramatic in cost per kWh — to increase the and/or reduce the total of the vehicle with battery installed, or to increase the range of the vehicle at the same or reduced point.

Unlike the battery there is no foreseeable path to the of the Model S Car. The separation of the of car and battery cell, while in nature, fundamentally alters the and reward profile of vehicle when compared with industry norms.

As a result, the S vehicle is future-proof in its present irrespective of any future risk or in the price or performance of energy be it advances in battery technology, capacitors or even far-future of on-board power storage (or generation) not yet commercialized or even Irrespective of such developments, the S Car is ready to take advantage of for renewed competitiveness and relevance to the for decades to come without of any sort besides renewing the of the battery tray underneath the

An investment in Tesla is therefore an in an Auto company with covering future-proof electric The comparative risk of obsolescence to with heavy investment in ICE production would appear to be greater.

All of the risk factors discussed surrounding Tesla and cars generally revolve around the properties of the cells as they relate to range and in particular. In the case of Tesla, risk is borne by its cell Panasonic.

Model S, A profound in upgradeable vehicles.

Beyond commented upon ability of the S to be upgraded over the air in terms of and firmware features.

The Model S is the cheapest and simplest car for its manufacturer to significantly, for example from a 265 EPA range to a 500 mile EPA range or This dramatic upgrade require exactly one component in manufacturing (a new 18650 cell). A new can be incorporated in the design of the battery without any change of process or new investment in production equipment.

that the new cell could come from any source, and first-mover advantage would in cases dictate that would be offered any breakthrough in design as the most attractive EV customer. However, if it were the that a new and attractive cell could not be developed by, purchased by, or replicated by Panasonic, Panasonic remaining a Tesla shareholder, the loss of Tesla as its customer, Tesla remains secure in its to offer the advantages of the new technology to its simply by purchasing cells a new supplier.

When compared the manufacturing design costs and required of traditional automakers to the line with new models for relatively insignificant differentiation, a doubling of the range of a Model S the swap of a single component to illustrate a powerful advantage in the Tesla business model in the of vehicle design.

Model S, an in after-sales market potential.

each advent of innovation in performance, Tesla will be to offer its entire customer the option to exchange the Model S for a pack that transforms the of the vehicle or includes additional for power generation that are only theoretical. Sales of nature can accrue to Tesla’s sheet for the life of the vehicle, considering its primarily aluminum and limited number of wear with no exposure to IC engine the absence of exhaust, fuel and oil can be very considerable, perhaps in the of 30 years.

When considering the value potential of each S sold, the prospect for a very service life, during time some very advances in energy storage are along with the essentially nature of the under floor tray design, it would reasonable to extrapolate the sale of new systems more than for each Model S and Model X sold, and for such sales to to be a source of revenue for Tesla into the second and subsequent market for its vehicles.

Battery with the benefit of turning into day.

A brief on Solar City (SCTY ): The City business with seed-funding provided by its Chairman Musk and run by Musk’s cousins and Peter Rive, is a fascinating model in its roll-out of what can be as a distributed solar energy company. Photovoltaic panels are on credit to customers in return for to install the panels and a contract to the electricity to the home or business at a rate than previously from conventional sources. City retains the right to the electricity to the customer with any sold to the grid, continuing after the cost of the panel is

Solar City partners Tesla on the installation of Tesla and provides an option for Tesla to obtain a solar panel to offset the electricity consumed by the S when charging. Solar like wind power has one key Power output is dependent on the presence and strength of insolation and wind force respectively, is unless it is combined with a that is able to store and provide it evenly or upon as the application demands. With to supply of power to the grid, a and smooth supply is a valuable quality power source.

For charging, a very high high voltage DC supply is well suited.

Tesla’s cooperation with Solar via its common Chairman provides an outlet for former vehicle for use in distributed grid storage, and vehicle charging, thereby a premium value or even from former-vehicle packs. built-in path to redeem from used batteries has the of enabling Tesla in due course to the offer of a low-cost exchange for its customers to upgrade to new battery as they become available. City also provides a for eliminating battery-recycling liability waste) for Tesla. As noted the cell technology incorporated in the Model S battery packs is well suited to extended beyond likely need in the

With the advent of upgraded packs as options for the entire S and subsequent Model X fleets, can dramatically reduce the cost of its customer fleet with access to a market for used designed seemingly with the of an extended second life in grid storage.

Model X Car a model in shared-platform efficiencies.

Model X is a car that is fractionally from the Model S in terms of RD, sharing as it does the entire S platform and infotainment systems. The X is conceived to answer a market for a large family vehicle in the of an SUV or Minivan. A feature of note is the of an All Wheel Drive configuration could mark the vehicle not for very high performance with enhanced practicality for snow and ice but also to reward the X with a market as a very off-road vehicle where traction control (torque ) combined with inherent in low center of gravity, low-speed and smooth gear-change-free transmission a tremendous natural advantage IC vehicles with respect to climb angle and handling of wet and lose surfaces.

The electric train offers extraordinary in the absence of engine air intake, hot and exhaust systems for handling land and water tasks. and toughened variants of the Model X may as truly remarkable off road as the S has proven to be on-road.

The conclusion of AWD for the Model X translates directly to a ultra-sport Model S AWD variant torque vectoring to deliver appeal as a sports car and additional in cold winter climates. as the transfer of technology from the S to the X minimal additional RD expense, so the transfer of technology from the X to the S.

The product strategy is a perfect of the efficiencies of cross-compatibility and re-use of RD to enter additional market

A brief note on the Tesla Train and Development business.

The Drive Train business Tesla banded vehicles is set to highly significant from 2013 with the introduction of the Mercedes Model B Electric This is an attractive and credible 115-mile range city car features a 28 kWh version of the Tesla-style battery pack, though Lithium Ion type as used in the Roadster and not NCA as used in the Model S, and a but Tesla inspired high-resolution network connectivity and smartphone app remote access to pre-entry control. While Daimler is at unique in its preparations for disruptive emanating from Tesla reported indicators of deep made by Model S into the S-Class market segment in the the Mercedes B Class Electric sets an example of what is for Tesla to do in trade for disruptive placed on the US Auto Industry near-term cannibalizing of Tesla’s product introduction strategy.

To regarding vehicles prior to Gen following the long phase of RD 2004 onwards including and factory build-out phases, has achieved its objective of producing not the best electric car, but the car of any kind as exemplified by a sample of its 2013 World Green Car of the 2013 Motor Trend Car of the Automobile Magazine ‘s Car of the Year, Time Magazine 25 Inventions of the Year 2012 and Consumer Reports ‘ car ever.

In the process, Tesla has considerable experience with the and built a substantial and valuable portfolio covering everything impressive battery safety (that amply match the of protecting customers as well as the company and its investors from bad an in-house induction motor that Nikola Tesla would have approved of avoids the requirement for expensive magnets, to patents protecting and sunroof mechanisms. Tesla has made some game-changing in the way existing core RD capital is to new models and variants and to produce future-proof cars containing the innovation of a discrete and replaceable tray that will a revenue stream for the company into the second and subsequent markets.

The Tesla business: If a financial model that is more impressively engineered the Model S.

A virtual monopoly on the call of climate change (in a way the markets can get behind).

The beauty of the story is that it does not with Tesla Motors at all. Tesla, as exemplified by the S, is the first credible caller in to a $ Multi-Trillion environmental awareness that has been gathering in the media, in schools, offices and policies the world over for the thirty years or more. is a credible caller and not just any because it is the first to read the print: The world demands an to climate change and global accompanied by improvements in standards of not a return to the dark ages.

The S is such an answer.

While still vary (and I hate to lose a readers’ on the subject of a business case of it), this author to agree. The recent news of the Curve that tracks the of atmospheric CO2 hitting 400ppm. a which if allowed to persist for enough (let alone rapidly as it is doing) seems to correspond to sea levels of 3 million past that would every one of the world’s coastal Looking at the inexorable rate of in CO2 levels corresponding directly to the era of oil over the past two hundred or less, it seems more likely this is not something that we are helpless to prevent. anything of our own doing, we have the to not only undo it, but to do much for ourselves in the process.

The imperative therefore is for solutions capture the power of the markets, climate change and global something that is profitable to That is the grand significance of Motors.

Every award-winning S sold or contemplated for purchase on its and benefits comes with a customer incentive (and not interest-free credit or a fancy The Model S comes with a chunk of value and meaning out from a multi $Trillion to the Tesla business: A powerful of genuine hope for humanity and the we all live in and a solid answer to the (or rage) that we will a profoundly dangerous mess for children to clear up after the irresponsibility of grown adults.

I refer to this later as the climate change externality of the Business or simply the $Trillion

Tesla Motors Inc. it is and what it is not.

Tesla has no to be a small luxury automaker. Tesla with its broad and current market leadership in vehicles has out-sold vehicles in the category, Tesla is in fact the stage expression of a $43 billion US automaker, accompanied by a drive supply business that it to partnerships with global Daimler (Mercedes) and Toyota.

In Tesla is proceeding on a war path to the Auto industry in the US and worldwide a of choices, all of which are not only but a cause for celebration for Tesla Disruption, willing cooperation, mandated by disruption and genuine that contributes to developing the overall and to provide a united against the oil lobby in the transportation

The Auto Industry is not the enemy

As a of fact, a vehicle that is expensive because it carries a battery that customers can cheaply or for free using a PV just adds to the value an automaker is able to provide to its at a profit. These are automaker that are traditionally given by automakers to the oil industry when a vehicle with an empty tank for the oil industry to fill. electric vehicles are far less to build and with the correct of scale, EVs are destined to be more overall.

The following marks author’s only point of with the philosophies of Elon I believe that promoting the motive for automakers to add value to customers with pure vehicles is a sufficiently powerful to achieve a disconnect from oil hence CO2 production) making a CO2 Tax I also believe that a large lobby of EV owners, once that figure a majority, will not tolerate the of charging zero emission from oil, gas or coal and this alone is likely to be to bring the markets and public into alignment with the of directing large amounts of into the construction of a clean This path seems powerful than a CO2 tax and does not a reduction in living standards to its aims.

The Tesla, the rolling

Tesla’s own answer to the latent posed by the Multi $Trillion change externality is profound on levels: With the stated aim of high-priced vehicles and following with increasingly affordable cars.

The progression follows an of falling battery price per performance over time the assistance of price-breaks on increasing

The progression follows the requirement to and protect RD in advance of inspiring

The progression anticipates an increasing for capital expenditure for production by previous iterative steps.

The (from Model S onwards) a halo effect from to lower priced models is impossible to achieve in reverse.

To these aims, the method employs conforms precisely to a Technology Adoption Curve detailed in a Silicon Valley business book by Geoffrey entitled Crossing The Chasm. feature of the Tesla business a degree of predictability to fundamentals the stock price.

To test the of the paragraph above (namely is using the Technology Adoption By all appearances the answer is yes. for further proof, CEO Elon has alluded to it in an interview by referring to the of accumulated customer adoption in an S annotated with Crossing The keywords: innovators, early early mainstream, late and so on (an S shape is also my favorite way of the rate-change of a bell-shaped curve). Elon Musk took of the Geoffrey Moore formula to effect in launching PayPal, it to justify what would been an otherwise unimaginable

With PayPal, Musk the business from a functioning program to a critical mass of with a public payout $60 Million in pre-loaded PayPal containing from $20 per account and until the system was self-sustaining around 1 Million users. It was $70 of Elon Musk’s $180 winnings from the $1.5 sale of PayPal to eBay along with sales of the and input from Daimler and the DOE got Tesla through its IPO.

three years from its IPO with the DOE loan paid in this is now Tesla’s turn to the Technology Adoption Curve.

are three vital features of conclusion that are worth in order to evaluate this

1. No matter what the contents of the flow, Tesla Output in of car sales is highly likely to the rising first leg of a bell-shaped a shape that starts off flat and becomes progressively If one were to consider the Roadster as innovators, the wait list for the Model S as Early Adopters, the Reports Review filling the Model S sales are now on the first of the Early Mainstream. It is a geometric that had already started prior to the end of Q1 2013.

2. The second is that analysts (and nature) rarely count on the probability of a geometric increase in performance.

3. The third feature is Elon Musk knows of these things (that business fundamentals are designed to geometrically and that both and shorts rationally expect improvements in quarterly results as a scenario for the longs).

The Tesla Q1 call beats.

From one of my own Alpha comments made the May 8th Q1 Earnings call:

There is a functioning line apparently 500 cars per week. is a reasonable speculation that figure might have pushed still harder a much faster than would expect cost / gross profit yielding and procedure — I would do it if I because that’s the blind for the earnings call beat and Musk can and probably will do in my opinion).

I will demonstrate the sources of geometric growth a further below. In the mean I would like to point out early-stages of geometric progression the explanation for the earnings call of both guidance and analysts in Q1 2013, and suggest that one be that in accordance with the Adoption Curve, this continue to be a pattern in subsequent calls for no other reason there is nothing to stop it that way.

Looking Q2, it is clear that it is possible for to process its backlog of orders to pace with a geometric extending from the Q1 results. To put the that it is possible, together the knowledge that the business is managed to conform to a geometric Adoption Curve, will any reader at this point to predict the real Q2 production and to extrapolate earnings. (These will be very different guidance). There is no such as fiduciary duty to shorts to an outrageous beat. Naturally, if we can be that the production figures for Q2 be closer to 6,750 — units than the 4,500 on then it is reasonable to expect with 38% of the float shorted on count, the stock stands to be to somewhere in the region of $150 to around next earnings.

this process is also a reason why reservation numbers are now

From another of my own SA comments:

would appear to be a pattern Non-disclosure of production figures like it is disguising low numbers in fact it is disguising high The spread permits for reliable of analysts’ expectations. A most and reliable method of raising a price — in fact I never seen skepticism against itself so expertly. It is playing poker with the cards in plain view read the analysts figures the number is, make more that.

If you can give high above analysts expectations and that also, fantastic.

The lag in fundamentals when compared to capitalization is based on out-of-date earnings data exacerbated by the of uncertainty on production figures to short interest to levels of low Good-news confirmation measured out in guidance only to be beaten on earnings is a perfectly engineered for a rolling short-squeeze that Tesla with a legitimate and capitalization. It is quite brilliant, on par the vehicle engineering.

The Tesla

Problem: Climate change (anxiety)

Solution:

Not just the electric car but the best car of any kind.

The brand has at least three key

1. The celebrity status of its CEO Elon his heroic early stage investments in Tesla, the philosophy connects Tesla to the $Trillion (that makes that a heroic investment in humanity), to City which serves to any question of green credentials a net emission-free grid input covers the entire Tesla Finally SpaceX that Tesla the last word in any suggesting that the Tesla cannot fundamentally out-class the credentials of a traditional automotive

2. Tesla: The American high-tech-leading job creator, exporter of American and the only US automaker to clear its to the US government (A restructured Chrysler walking away from Billion does not really

3. The Brand value present in the Model S is where it gets During the Q1 Earnings Call, S was reported to be replacing an unpredictable of preceding vehicles from to very expensive.

So far, the S has only been expressly by objective measures. By range, economy, sports performance, handling, safety, low usage of few moving parts, low maintenance, fit and comfort, quietness, trim, large sunroof and a variety of concerning the relative cost of when compared with vehicles.

Not one single lifestyle or explicit celebrity endorsement. Yes Diaz and Ben Afleck and probably other celebrities own a Model S Tesla drawing attention to it. is a great deal of un-tapped in this area because the Model S is not confined to a socio-demographic It is an EV, it is green, it is expensive, it is economical and low practical, serene, connected to the Powerful, Sporty, responsible, also feminine, it speaks of progression, even celebrity, it speaks of environmental tenderness, it speaks of fun, nights on the beach life, it’s a family car, a doctor on a limo — the list of is endless, and there is no one who needs to uncomfortable purchasing it as would be the with a Ford F150, a Viper or a BMW 7 Series which define whole swathes of as either aligned or not aligned the stereotypical imagery associated those vehicles: For example, it not be a good use of advertising budget to the Viper or the 7 Series in a magazine tasteful home decor.

But you certainly do so with the Model S as easily as the Model S would fit the Viper in Fast Car magazine or the 7 Series in The Economist. It is also that an F150 driver of could stretch to a Tesla S and justify the sense in that to his friends, family and neighbors on its low maintenance and running costs and environmental credentials and enjoy better dating success it by comparison to stretching to buy a similarly BMW 7 Series that would be considered financially irresponsible.

S is a remarkable car in many more than its engineering when its market access.

As a footnote to the of branding:

The curious case of the Supercharger station.

Almost could be as evocative as a well-branded Supercharger Station replete obelisk, solar paneled and the promise of endless free fuel, especially if one is forced to past it in search of a gas station. or not Tesla makes use of the potential, I propose that the ability of a Station to attract a stream of for a mid-travel break of thirty or more is the dream of the gas-station multiplied. It would be counter if highway-accessible retail and food seeking a reliable source of customers with time to and eat would not bid for the opportunity to host a station in their parking

This factor can lead to a far rapid rollout of Superchargers at impact to Tesla than otherwise be envisaged.

Three of geometric gains embedded the Tesla business model.

feedback loop 1.

An illustration of expenditure as a battle to obtain share between Tesla and a automotive manufacturer.

(Ignoring the for drive train cooperation for of example). It is possible to make an comparison between Tesla and the Detroit-based Automotive Industry

Tesla cost of publicity: (constant media attention)

cost to compete: $high and increasing

Value of press with incremental Tesla $high and increasing.

Impact of advertising with incremental sales: $diminishing returns.

The is possible because of the $Trillion referred to above. The public is primed to welcome the rise of Last year, GM reportedly $4.2 Billion on advertising, reportedly closed behind $3.9 Billion.

It is impossible in of these kinds of numbers to with Tesla that is exponential gains in awareness and value without the requirement to for any above-the-line advertising expenditure at

The result is essentially a battle a Positive Feedback Loop and a Feedback Loop. A head-to-head of this nature is a foregone in Tesla’s favor. Tesla with the tailwind of environmental for its success is already potentially the important and least compromised Brand in the USA today and gaining traction World-Wide via the Internet and Retail.

Positive Feedback 2 3.

These positive feedback-loops to both sales and the cash to support geometric sales They have been possible by strict adherence to on brand value first the support of the $Trillion externality.

customer vehicles leveraged as a $1 (and growing) display and fleet in a mode indistinguishable an asset of the company.

A source of sales growth, the Tesla sales force :

Tesla the extraordinary advantage of an evangelical base. At present, there are an 10,000 (minimum) Model S in circulation and growing rapidly. At a average value of $100,000 these vehicles represent a $1 and growing fleet of sales assets, each complete one if not a whole family of messianic In many, if not most cases, S (and Roadster) owners are and remunerated for sales success by uplifts in the Tesla stock

The sales story these can tell is more genuinely than anything that be said in an auto dealership by any amount of advertising, and the sales can be as simple and direct as providing the use of a connected to the Tesla website to a reservation with the prospect at the of passion. Alternatively, a sale can be as of pressure as a later visit to a Store for a test drive or at home with the Internet. It is and supported by the simple message, the to climate change anxiety: not the best electric car but the best car of any

For calculation purposes on this alone, this author that it is entirely appropriate to add at 100% of the value of each car to the value of Tesla Motors as a virtual asset which its lifetime can readily achieve a stream of sales.

In traditional industry practice, each car has a relatively high percentage to lead to a same-brand sale at end of or end of a period of ownership. The process of a net parity customer retention the fleet, let alone a positive growth figure is fettered the negative feedback loop of in advertising, somewhat subsidized by the of maintenance. It is also true to motivate the repeat sale, it is necessary to bear the cost of a new iteration of the model type or designing and producing a new vehicle few years.

The comparison is again one of a feedback loop vs. a negative loop. In direct competition, the is clearly hopeless for the traditional of obtaining incremental sales vs.

Customer vehicles as an inexhaustible of cash flow positive capital for geometric growth, from a fixed asset of the leveraged for lending (except the of finance is externalized).

When with Tesla Finance and in the of all orders where delivery fits within the window of credit terms, Tesla a total of 100% of the full value, composed of the customer fee and direct payment or the proceeds of the bank loan plus an 2% commission in the case of financing Wells Fargo and US Bank 100% or 102%.


From production onwards, all funds are by Tesla in advance of cost of sold exposing profits as cash flow.

Simply the cash-flow model of Model S is:

Order 100% or 102% input Parts and Materials Manufacture Delivery Parts and Payment.

When considering each production cycle is to yield funds sufficient to the same number as the last, an additional amount of vehicles to the profits of the previous cycle.

compounding will not be perfect, in a case that assumes a 25% margin. This presents the to increase production by 125% for completed production cycle burning cash. Any period of state production at each level will permit the accumulation of cash to fund production equipment and SGA overhead.

In an with Bloomberg on May 22nd, the repayment of the DOE loan, the question of future funding requirements was by Tesla CEO Elon Musk as

‘I think we actually enough capital at this to not need to raise any future because the S is cash flow we have more than money to get the Model X done and I think we will generate free cash flow to the roughly $1Billion necessary to the affordable mass market 3rd vehicle [..] just on internal cash flow.’

Tesla Financing has the effect of the collateral value of each produced as security for the working of the Company, the loan repayment and of finance being borne by the owner in the normal manner of finance. By this method, exists a positive feedback that increases the working of the company by up to 102% of the value of vehicle sold in a manner has its direct equivalent in adding a asset to the Market Capital of the

The Innovator’s Dilemma and its solution, style.

The formula for disruption inexorably to its logical conclusion it takes root. At the outset, a team with a new technology can be motivated to win early adopters less than 1% of the market of an technology. By way of illustration in the auto 1% of the customers of a large ICE manufacturer is a attractive win for a small newcomer.

Conversely, for the large ICE manufacturer against the loss of that 1% of its by direct competition will far more than retaining customers is worth. The ICE manufacturer cannot afford to build a EV and declare with full that EVs are now the way forward and ICE is old news sufficient integrity to retain 1%, because by doing so it risks 99% of its customer base and destroying the of amortizing capital equipment for ICE Retaining 1% of its customers cannot the bill for the damage.

What the ICE will tend to do instead is harassment in the 1% space: Hybrids.

By the the young EV company has won a meaningful of customers away from the ICE for example 10%, the larger is faced with losing and market share rapidly the small company has by then brand leadership in the new technology and is accelerating geometrically to becoming too and too confident to be purchased. In a battle a small money-making enterprise and a money-losing enterprise, it is inevitable market leader positions be reversed with catastrophic for the old incumbent.

There are very few defenses against this One of which is exemplified by the actions of with respect to Tesla.

The of Daimler as a minor shareholder and in Tesla could be lifted from the pages of the Innovator’s with Daimler effectively itself as heir apparent of the business upon maturity. In a Daimler affiliate, Blackstar. a right to review any serious party bid to purchase Tesla preventing the sale of the business to party without Daimler’s unless Daimler is literally Jerome Guillen. formerly of the Business Innovation department at is a key person at Tesla in his role as of Model S Programs. Harald is a Tesla board member who is for the electrics and electronics of all Mercedes-Benz and the development of Mercedes eDrive Effectively the companies, Tesla and are intertwined, which provides security for both parties and the urgency for Daimler to dismantle its ICE business until such a that the EV market is considered enough to enter with commitment.

Once Tesla has fully established and effectively to lead the Daimler global in EV production, there appears to be a path for that to happen. arrangement provides Tesla an option for a step-change in scale and for an most likely via the route of on a 2-5 year horizon. It is worth that in accordance with the of the Innovator’s Dilemma, this would more likely to a Musk, Kroeger and Guillen of Daimler, were it to take rather than the absorption of as an adjunct to the ICE business.

In summary

Motors Inc. looks to be past the point of vulnerability as a and indeed past the tipping of the inevitable disruption of the US Auto while remaining largely the radar of provoking a hostile beyond a flurry of objections franchised dealers. With the capital garnered through repayment of the $452 Million DOE this author is of the opinion State Franchise Laws are now a obstacle for Tesla.

Tesla is the senior party in negotiating with respect to its power business in the USA, especially. it may be too early to see the willingness for any new cooperation in of Tesla cutting meaningfully sales of incumbent manufacturers and may be a matter of more than months and reliant upon the of the gen 3 vehicle, although the latter is likely to be accelerated into sooner than 2017 at juncture. Elon Musk has specifically that he now expects to be able to fund the $1 billion cost of readying the Gen III program internally-generated cash.

The Auto in Europe is still less defensively and the buying public motivated than in the USA for the adoption of the S in terms of fuel prices, with Elon Musk to a heavy schedule already Tesla and SpaceX, there be some additional resource in Europe able to continually Europeans to the brand message of this factor out-weighs the attractiveness of the value proposition by the vehicle itself in leveraging consumer fervor.

The business of is able to scale extremely on internally generated cash and enjoys unprecedented support as a to failure in the form of CEO guarantees Tesla also offers security in the form of a pre-laid to merger or acquisition with however, it is worth noting this option is presented as a for Tesla and not necessarily the most possible outcome for the company or for the I have said little Tesla Retail, however, it is to say that the Tesla brand is to survive any event in the foreseeable including merger because of its importance within the innovation of sales and service.

In addition to the burden imposed by US dealers on the Automotive industry is useful in Tesla’s dominant negotiating for change to EV production based on Drive Train IP. Naturally, to Q2 results, it is very difficult to more than one data on a curve as the business was in a very mode at Q4 2012, and this stands to unseat both and shorts in the interim.

It is, however, to say with a great deal of that the Q2 earnings call lead to a spectacular new run-up on the of every metric currently to be in evidence.

Thank you for taking time to read this article, I hope very that it has been of value to I trust you would agree Sun Tzu would be proud.

Disclosure: I no positions in any stocks mentioned, and no to initiate any positions within the 72 hours. I wrote this myself, and it expresses my own opinions. I am not compensation for it (other than Seeking Alpha). I have no relationship with any company stock is mentioned in this (More. )

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