“my proceeds from Paypal were $180 million. I put $100m in SpaceX, $70m in Tesla and $10m in Solar City. I had to borrow money for rent.”-Elon Musk
Last night, the world watched as Elon Musk aka the Boy wonder aka the Elite Show Man aka Real Life Tony Stark unveiled the next step in his EV masterplan: the Model 3 (slow clap).
As an investor I’m extremely relieved that the unveiling was a success-the company racked up 135,000 pre-orders (thats around $5bn worth of preorders, y’all) by the end of the night giving new fuel to the company’s stock (up 4% today) and a good $135m to it’s balance sheet. That was a sorely needed capital infusion, and mostly free too (well, non-interest more like). I sincerely hope the eventual launch expected in 2017 goes off on schedule. That’s one thing Tesla has consistently struggled at: having the cars go out for delivery on the planned schedule. But it’s understandable-they’re new, still learning how to make cars at scale and they don’t have the financial firepower of an established car giant like GM, Ford etc.
But if Tesla pulls this off, this might be the win we’ve all waited for. Gigafactory will crank up, batteries will get cheaper, EVs will flood the market and profits will hopefully pop up on the balance sheet. Let’s keep our fingers crossed.
The car itself is a beauty. It maintains the Model S stance we’ve all come to love but the front grill is a bit higher and flattened in front, more Porsche-esque, and the size is smaller. The back wing is shortened and the center is raised a little. So in essence, all three models are a modified version of the same basic body. Cool for me.
It is a technological wonder as we’ve come to expect. Autopilot enabled, cutting edge software, over the air updates, a range per charge of at least 215 miles (some will be higher) which is great considering a London cab for instance averages around 190miles per day and most of us do more like 30 at the most. Expect a rapid expansion of the super charger network if this really takes off next year.
One thing I hate about the car is the dashboard screen thingy.
Right now, it doesn’t have a proper dashboard, just a huge flat Surface like pane with electronic controls. It looks..out of place. It’s so far the dodgiest design choice I’ve seen in the car and I hope that doesn’t make it to the production phase or if it does, they streamline it a lot better because as it is right now? It’s hideous. Plus the speedometer is on a small corner on the top left of that screen instead of right at eye level at a gauge cluster behind the steering, which is odd and will likely require effort to keep track of. And that’s not even thinking of the prospects of finger print mashed all over that surface *cringe*. They need to fix that.
However, by far my favorite thing about this car is that it’s fast. People talk about Chevy Volt coming through to steal the competition since it launches earlier than the Model 3 but that’s hogwash. Volts are a thicker, smaller Prius. Model 3 is a smaller, sleeker Model S. So even though they’re both billed as smaller, family sedans, the Model 3 has it’s slowest version going 0-60 in 6 seconds. Most of them will go faster than that. As Elon Musk so clearly put it, “In Tesla, we don’t make slow cars.”
I know someone, my friend Addy who is part of what they call the S3X club (pronounced Sex), which are people who own all three Tesla models. I suppose if you own the original Roadster too, you’re part of the Road Sex club. Me I’m just here trying to lose my Tesla virginity in 2017.
As a close, I just want to reiterate that I think this is it. If Tesla wins (and even if he doesn’t) this will be the generation that will turn fossil fuel cars into a collector’s item. By the time I talk to my kids about cars, driving a Jeep Wrangler that kills a gallon every 13 miles will be a curiosity. I mean I’ll do it still, but it’ll have the same effect as your grandfather pulling out his old school Thunderbird.
The Business Side of Things
All of this would not matter one bit if the company itself is not around long enough for the success of their cars to be reflected in their business model. Tesla is still burning cash at a shocking rate. One of the issues investors raised about Tesla when it announced their 2015 earnings in February was that their working capital was negative after racking up at least $700m in losses last year alone (which was an all time record). However, when you deduct one of their biggest liabilities, which is about $283m in customer deposits, their working capital tips back into positive. When you also consider that they classified a huge amount of their convertible notes (almost $700m worth) as current liabilities because they expect them to convert to mezzanine equity this year due to how high their stock has risen, then we have a reasonable belief that their capital situation is not so dire in real terms. As of today, they have around $140m in additional customer deposits which should further deteriorate their working capital position, at least on paper, even though it gives them more cash to play with. The biggest risk here is that the Model 3 is a dud, people cancel their orders and they’d have to refund that money. I don’t see that as likely but things happen.
They still have a $1.1 billion in cash and around $1 billion revolving line of credit of which only about $130m of it was used as of December 2015. That should hold them at least through this year, considering they’ve budgeted about $250m for their gigafactory, and $200m for further upgrades to their manufacturing process, outside of their regular operating commitments. It could be better, but it’s not the worst thing.
The bottom line is, there’s a lot riding on this Model 3 if Tesla is going to go from a $30bn start up to a financially established game changer. I’m optimistic.