Google or FB would have no problem at all spending a measly $4.5bn on a project that potentially has real impact on their primary business (search,ads), or even secondary one (android, etc.). Their only problem is finding a way to spend it.
This is because Google makes software, and software doesn't really require much capital. The only thing they could realistically spend that kind of money on is m&a.
So, because they don't need it, google has many times that sum sitting around and could probably raise many times that sum again.
Because the only thing they could spend it on is m&a. If they do, the money goes to pay founders/investors in the target company....and back to to the "available to invest" pile of money collectively accumulating in software giants' balance sheets, VC & PE funds and such.
What rarely happens is actual spending.
If Tesla or another manufacturing company gets ahold of $5bn, they will actually spend it on parts, machinery and such.
The current money market is so loopy. All it can do is move money around. It can't spend it. It's like a real estate market in dense places like NY, but worse. Lots of money flies around, but it goes between one pocket and another. Very little goes towards building buildings. An investment in the gigafactory would be more like investing in a new city. It actually results in buildings, but isn't going to be attractive to investors, because... because it isn't a zero sum game. Other people can build a building too. There's no reason for your building to be worth more than it cost you to build.
Not to be pedantic, but this is exactly how the economy works. One person's spending is another person's income and vice versa. An alternative definition of an economy is "the way money moves around"
If we're getting pedantic though... money doesn't just move around. It also comes in and out of existence.
To the larger point though, what I meant is money moving in and out of investment pools. If Tesla raises money to build a factory, the money they raised results in operating revenue upstream for parts makers, materials companies, builders, toolers.. If Google raises money to by a company, it just goes from one investment pool to another.
BTW.. in some economists conception of the market, banks and similar (not sure if a PE funds count) are not part of the economy. They're outside of it.
read this in a poetry book about love. Many things in life are ultra hard to get when you're further away from it.. an hommage to the non linear multivariate nature of life maybe
Get the thing in loan twice: that way you don't need any particular of the two.
Somewhat unfortunately, that latter statement is just as troublesome and can translate as "I am using you, x, as a way to make y feel jealous."
The only question is whether or not a lender is willing to sell their cash now at an interest rate that the borrower finds agreeable. Sometimes, if you really have a bad track record, you can't get any financing, but in most cases financing is available, just not at an interest rate the borrower is willing to pay. The borrower also has the option of obtaining financing via selling equity.
Bottom line, financing is available at terms that have positive expected value for the person with the cash, not based on how much the borrower needs it or not, as with all other vendor - consumer relationships.
It has nothing to do with need, just ability to pay back. It's mostly about leverage. When you have no money, leverage won't get you very far because 2 x 0 is 0. But if you have some money, you can leverage it, 2 x 1 = 2.
If you have a billion dollars, and try to over leverage by taking a 100 billion dollar loan, they won't let you do it, unless you are powerful enough to create a world financial crisis.
To clarify, this is an acronym for mergers and acquisitions. That wasn't immediately clear to me.
And when Tesla spends it, the money goes to workers that perform the physical labour. These situations differ in amount of people getting rewarded and in how long these chains are, but in the end, you give money to people for exchange for something valuable they created.
If Google takes $5bn (imagine they don't have it) from a firm/fund to buy a software company, that money goes to founders and investors. In practice, the money went out of a an investment pool and into another one, staying in the macro-pool.
What happens when tesla takes $5bn is it comes out of the fund and goes to pay parts manufacturers, toolers, builders.. IE, it is spent in the "real" (in the sense that economists use th term) economy. One affects the ethereal world of bank balances and stock valuations. The other affects wages and production of goods and services.
Truer words have never been spoken. I remember when our startup had to fight to get a $5k credit card from Chase. Now our Amex LoC is like 750k @ 6% and it’s useless.
Sorry, but businesses raise money for capital projects all the time. Tesla, itself, has raised billions to get to where they are today.
Maybe the Money People are smarter than you think, and are looking at the state of Tesla's business and saying, "if we lend them money for a factory they might not even require, will we ever be paid back?"
Most of the money invested in tech (excl early VC money, which is a small portion) very little is "true" capital investment. It's like the difference between investing in swappable corn notes and investing in seed corn which is going to be planted. One results in more corn. The other might be more profitable, depending on the year.
Like a Chinese ghost city?
Investment in a manufacturing company like Tesla enables more cars to be built, technology to progress and probably lots of 2nd order effects via their supply chain.
There's another explanation for the statement above. The more you need the money, the grimmer the outlook is from the lender's perspective. So you're much more likely to secure capital/loan when you are already financially secure then when you are extended almost to the limit. And this is true regardless of the domain.
You give the money to make money so you're looking more at "sure wins" and less at risky bets.
Imagine if Toyota bought Tesla. That may be the best outcome possible as the platform would suddenly be at scale.
The technology could be added to all Toyota cars ICE included (with their level of fit and finish) and the ‘electric only’ line would be supported while it ramped up and lowered cost.
This would solve a lot of Tesla’s problems and make the outcome far more likely to be positive. As it stands, I want a Tesla, but I am not going to buy one because 1) cost vs quality 2) likelihood of implosion
The race now is between established players catching up to Tesla and its technology, and Tesla catching up to established players with their capacity to produce cars at scale.
I'm under impression that the value of Tesla comes from the brand itself and Elon Musk's persona. The tech itself is nothing special, they are far behind in autonomous driving but the brand is very strong, they easily upsell "one day it will be autonomous" packages.
And the car companies are playing in mass market segments that Tesla isn't in e.g. Kia Soul, Renault Zoe, Ford Focus, VW e-Golf etc.
A stock-for-stock merger is also a possibility, it's been done before.
Culturally it may not be a good fit. Toyota, now days, is very conservative and risk-averse, and a Tesla under Toyota ownership may not have the freedom it needs to continue the kind of moon-shot innovation and investment that has got it where it is now.
From Toyota’s perspective, there’s nothing to stop them building high quality EVs in high volume and competing with Tesla. They don’t need to buy Tesla to do that.
I’m posting this now so I can say “told you so” in three years.
And they are probably right that at this point they are more for early adopters. But in the coming few years that will inevitably change.
Compare the efficiency of their vehicles (especially the Model 3), to something like the I-Pace or e-tron.
But Tesla’s real advantage lies in it’s software, it’s autopilot, it’s economies of scale in battery production, and it’s supercharger network. Competitors will eventually catch up with all this stuff, but it won’t happen overnight.
Software isn't that special and some companies far eclipse it e.g. Volvo Polestar 2. Autopilot is a death trap so no advantage there. Supercharger network is definitely a big one but not for much longer.
The other piece of technology Tesla has is the driving data from all those cars on the road already. This is an important asset for autonomous driving because machine learning benefits from greater volumes of data.
Neither one of these puts Tesla so far ahead of the game that the competition can't catch up. But they're real advantages that could keep Tesla in the game if they can sort out their manufacturing process.
Here is a good article on the direction of the japanese car industry.
https://www.scientificamerican.com/article/japan-bets-on-a-h...
I don't understand this argument. Not saying Tesla is Theranos, but Theranos ran on hope and dreams for 10 years. These things take time to play out.
Amazon ran on losses for many years and it played out in the end. By choosing what company you compare Tesla to, you already choose a particular narrative. It's worthless as an argument and if you have a reason for your belief, it's more useful to discuss that rather than arbitrary comparisons.
That doesn't mean they are ultimately wrong, but it does mean that much of the negative sentiment is no more grounded in reality than the positive sentiment.
It is an unfortunate state of affairs.
That doesn't mean we shouldn't celebrate and support and enjoy them while they're here. Tesla's stated goal is to advance the state of transportation, and they can do that whether they're in it for the long term, or just shake things up for a while and force everyone else to catch up. Sort of like Tucker or Studebaker, IMHO.
I'm too young to have owned a Tucker when they were new, but I'd be proud to have done so. Whatever happens to Tesla, I want to be able to say I was part of it.
Because the mainstream press is catching up to things that "the Shorts" have been seeing and saying for a long time.
It's a fact that Teslas are great cars. It's also a fact that the quality is just okay, that the market for $50k+ vehicles is limited, and that Tesla can't produce a $35k vehicle at a profit.
If people bought into the idea that you were getting a fully autonomous car that would drive itself around and make you money while you slept, for $35,000 before incentives...I'm not sure what to say. But it seems like many people did.
It's just so often incorrect. Investing advice from mainstream sources isn't a good strategy.
Tesla has reached enough scale to be more or less sustainable (in the sense that they don't need to be posting losses anymore), and I'd imagine they can continue to grow, if more slowly, without the rapid expansion of battery production capacity that this story is about.
But the great aim behind the gigafactory (at least, how I read it) was to drive battery cost down very aggressively, that is, working on the supply-side economics. This would then make EVs (not just Teslas) accessible to more people sooner, without all the subsidies (which have been a demand-side hack that didn't even work very well). If this means a slower clean transition (and I think it does) that's a sad outcome.
Volkswagen will be taking orders for their new electric hatchback in a month. It's Europe only at this stage though:
https://www.electrive.com/2019/03/13/vw-id-3-introduced-it-i...
The cheapest variant is supposed to be priced under 30,000 euros. But let's see what the price and availability is like in a month.
I really wish that Tesla had reached that point as that would mean that it's almost possible to profitably produce electric cars, but they clearly haven't.
[0] https://www.teslarati.com/tesla-model-3-batteries-cobalt-vol...
If they’re not scaling cars or batteries, then peak Tesla would be inevitable.
> Panasonic's Tesla EV battery business had operating losses exceeding 20 billion yen [~180m USD] in the financial year that ended in March, up from a year earlier. The losses were exacerbated by delays in the start of production of the Model 3.
It's not entirely clear to me from the article whether this loss stems from the operations itself, or from the reduction in demand for the model 3. Either way, it's bad news for Tesla.
Panasonic has lowered its forecast for the 2018/19 fiscal year, which ends in March, following a decline in profits over the winter. However, the Energy division, which also includes the battery business with Tesla, recorded its first operating profit in three quarters at 131 million euros.
The Japanese company cites the trade dispute between the USA and China as the reason for the lowered forecast, which caused demand for automotive components and factory equipment, among other things, to fall.
https://www.electrive.com/2019/02/05/tesla-saves-panasonics-...
As someone in the (US) industry, everyone's hurting right now, not just Tesla. The GM plant closures have had a large ripple effect on suppliers. And beyond that, in general it seems like there's been a lot of belt-tightening over the last year. Whether self-fulfilling prophecy from fears of a recession or something else, I don't know.
Yes, that auto market is cyclical. That's why it's nice to be producing tons of cash flow and income, instead of burning billions of dollars.
They are pausing spending of an additional $100-150M until Tesla needs the additional capacity. They don't yet need it.
What a terrible title...
"It was reportedly considering putting an additional 100 billion yen to 150 billion yen ($900 million to $1.35 billion) into the Gigafactory."
That wasn't the actual investment up for consideration, and it's not needed yet because Model 3's production is satisfied, hence Tesla is offering longer range versions of the model 3 without the extra motor/AWD.
An odd thing happened last year when Pana's reported margins dropped while Tesla's went way up during their "miracle Q3." A common theory among Tesla shorts was that Pana had helped them make the quarter with a discount on batteries, to be paid back at some point in the future. Given the big drop in Q1 deliveries and demand standstill in the U.S. after the Model 3 order backlog was depleted, maybe Panasonic is worried they're not going to get paid back?
> “We will of course continue to make new investments in Gigafactory 1, as needed,”
Update: In a comment to Electrek, Tesla exapnded:
> “We will of course continue to make new investments in Gigafactory 1, as needed. However, we think there is far more output to be gained from improving existing production equipment than was previously estimated.”
[1] https://electrek.co/2019/04/11/tesla-panasonic-suspend-inves...
> Tesla and Panasonic are freezing plans to expand the capacity of their Gigafactory 1, the world's largest EV battery plant, as concerns mount on Wall Street about weakening demand at Elon Musk's car company.
Freezing expansion, not production.
