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Steve Funk  

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  • A Comprehensive Look At Tesla's Home Batteries [View article]
    Does anyone know how much market there is for this battery back-up scheme? It is hard to believe while sipping a Chardonnay in the vineyard but there are states that do not allow the "net metering" that is in use in California. Without net metering you have to sell your solar electricity to the utility at wholesale and buy it back retail. It sounds crazy but that is the way that some politicians have determined is the best way to pay for the infrastructure needed to buy electricity from you.

    Bottom line is that if you do not have net metering you cannot store your own electricity, unless you first buy it from the utility. What is the point of that? Tesla will sell no storage batteries in those markets.
    Mar 2, 2015. 06:47 PM | 2 Likes Like |Link to Comment
  • General Motors Is Poised For Growth This Year [View article]
    I agree that we may be approaching a cyclic top in autos, and therefore might not be a good entry point here.

    You seem to have a clear picture of who-knew-what-when inside GM during the last 15 years. As an investor I think this blows over. Most customers have seen that this has been about 5 deaths out of 30,000+ each year. On top of that you are really only at risk if you are a teen with five pounds of junk on your keychain.

    We will know this quarter, but it looks like GM will not have to pay out much more than the $2.9B already set aside.
    Feb 18, 2015. 12:48 PM | Likes Like |Link to Comment
  • Does Tesla Motors have a China problem? [View news story]
    The redacted Tesla/Panasonic agreement is available on Edgar. Here is the memo of understanding with other agreements following.

    Bottom line is Tesla has to supply the building, Panasonic supplies the know-how and capital equipment, and Tesla promises to buy all Model S and X batteries from Panasonic. Tesla discussions with others may be in anticipation of the Model 3.

    As far as Panasonic allowing their "secret sauce" to be shopped around, I highly doubt it. The basic lithium chemistry is known. The small amounts of additive to the electrolyte are what allows one battery to charge faster or for more cycles. Those seem to be kept as trade secrets rather than patented. The fact that Mr. Musk is tied tightly to his battery vendor is what has caused him to lash out at the battery industry in general. I don't see how his current Giga-factory arrangement is going to give him any more flexibility.
    Feb 13, 2015. 12:30 PM | 2 Likes Like |Link to Comment
  • Does Tesla Motors have a China problem? [View news story]
    "The cells have to be built to Tesla specifications"

    What makes you think that Tesla owns the battery formulation? Show me one Tesla patent for battery chemistry. Battery packaging, yes, chemistry, no. Somewhere in the redaction of the Panasonic/ Tesla agreement it says that Tesla does not get to take the Panasonic IP and shop it around.

    The auto industry is built on long standing partnerships for a reason. The Japanese especially try to forge long term business relationships. If Mr. Musk queers the Panasonic deal it will be Tesla who will suffer.
    Feb 12, 2015. 02:51 PM | 3 Likes Like |Link to Comment
  • Does Tesla Motors have a China problem? [View news story]
    "The have fundamentally a wrong product for China."

    Tesla's product is OK. China is building nuclear plants like crazy in order to electrify much of their infrastructure. It is part of their plan to solve their pollution problem. China will surely have many EV's of all stripes in the near future.

    The problem that Elon could not see is that he is the wrong person to partner with China and little will change that. China has essentially blessed relationships with GM and VW. China doesn't get along with Japan so that ruled out Toyota. GM and VW have tech centers and cash that can help build in-country manufacturing plant and infrastructure. I am sure that GM and VW will transfer intellectual property to China partners. Elon Musk has no cash to offer, any cash he can borrow is being thrown into the desert. Tesla did not really have any IP to begin with so they have nothing to offer the Chinese there. Tesla has partnered with Toyota and Panasonic (see above dislike for Japan).

    In short Elon Musk went to one of the toughest markets with absolutely nothing to offer the Chinese. Then he demands to be given unfettered access to their market, with government subsidies, so that he can take the cash out of the country and put it into a joint venture with the Japanese. Who really thinks that plan had a chance in hell?
    Feb 10, 2015. 06:28 PM | 10 Likes Like |Link to Comment
  • Tesla: Social Responsibility Scorecard Shows Strengths And Weaknesses [View article]
    "I have yet to see a decent academic study on emissions tackle the issue of varying production through each day and charging at super off peak times."

    There are all kinds of academic studies on EV impact on the grid. Check out papers on DOE websites. Start at NREL. You might check out papers at Rocky Mountain Institute. Amory Lovins staff presented a pretty good summary in the book "Reinventing Fire".
    Jan 22, 2015. 04:32 PM | Likes Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    I think your document proves my point. First, R&D is typically expensed, we agree there. Interestingly there are generous tax credits for R&D expense.

    What is at issue, and is addressed in your referenced document, is what should be R&D and what is not R&D. If you read the whole document it is clear that not all engineering work is supposed to be considered R&D.

    In your linked document, Ernst and Young make the point about capitalizing engineering work by showing actual 2007 numbers for four European auto manufacturers (page 10). The amount of R&D capitalized ranges from 30% to 50% of gross R&D. The significance of capitalizing some R&D can be seen by the Amortization of the capitalized R&D shown in the same table. Volkswagon amortized 1.8 billion (Euros?) in 2007. That is material, even for VW.

    On page 12 of the Tesla 10-Q (ending 9/30/14) there is a table of asset depreciation and a few short paragraphs of explanation. There is no line item in the 10-Q for capitalized R&D. If Tesla capitalized R&D at the same rate as Fiat (54%), then there would be $72 M of capitalized R&D labor. If you assume 10 year life that would be an adjustment to cash flow of $64.8 M. Of course these numbers are guestimates because Tesla will not address how they are capitalizing assets. Even if I am off by a factor of two the expensing of R&D is probably causing an overstatement of vehicle profits in the future.
    Jan 22, 2015. 11:37 AM | Likes Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    Your bio shows an accounting degree so I would think you would be more in tune with this than me. I managed a profit center at a major assembly plant and when we put equipment in for a new product program, the engineering time to install that equipment was capitalized.

    Tesla does not account for product programs that way. There is just a never ending stream of equipment going into the plant. On the one hand I understand you do not really want to tip your hand regarding profitability of individual products. No one does that. But when you look at estimated engineering employment and the amount accounted as expense, it looks like none of the labor is capitalized, and yet at least some should be.

    Expensing now will make apparent profitability look better later-on, for example when Model X revenue kicks in.
    Jan 8, 2015. 03:46 PM | Likes Like |Link to Comment
  • Tesla: Social Responsibility Scorecard Shows Strengths And Weaknesses [View article]
    "Nuclear and hydro can pick up very quickly with just quick flip of a switch"

    I have no idea where you get this stuff but these falsehoods do not help the discussion of converting our power grid to new fuels. Nothing in your comment makes sense. Have you ever been in a power plant??? Nuclear reaction time is not faster than coal.
    Jan 8, 2015. 03:34 PM | 2 Likes Like |Link to Comment
  • Tesla: Social Responsibility Scorecard Shows Strengths And Weaknesses [View article]
    You seem to be out of your league in the power plant world. I have worked in coal and nuke plants and they can ramp up 3-4% in a minute. That is not instantaneous but on a 500 MW boiler that is quite a fast increase. Not sure what your "two kinds" of nat gas plants you are talking about, I can think of more than two types of configurations for nat gas. The nat gas peakers are fast but not instantaneous.
    Jan 8, 2015. 03:29 PM | 1 Like Like |Link to Comment
  • Tesla: Social Responsibility Scorecard Shows Strengths And Weaknesses [View article]
    "those coal plants are wasting power generation at that time due to the low demand and the inability for those plants to effectively idle"

    Say, what? Do you really believe that is how a coal plant works? Is there a giant glowing resistor in the desert draining the excess load, just waiting for an EV to plug in?

    Sounds like you would be very surprised at how fast power plants can spool up.
    Jan 6, 2015. 03:56 PM | 3 Likes Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    David Muncier,
    "Elon and company are doing just fine with a highly automated US plant that they bought for song, along with a bunch of high-end tooling, back during the recession."

    First, the plant was given to Tesla. If you call free a song then fine. General Motors was in bankruptcy and wrote off their half of the plant. Toyota "charged" $40M and in the same transaction bought $50M worth of stock.

    The catch is that the plant was not worth anything. Dozens of these plants were bulldozed in the last recession because they are impossible to sell. Toyota tried selling the plant but could not until Tesla came along.

    The other fallacy is that there was a bunch of "high end tooling". All of the robots were bought new by Tesla. The plant was gutted except for the chain and some 25 year old presses. Autointel lists the highest production year at NUMMI as 357,809 units in 1997.

    It is deceiving of Tesla to continue stating that their plant can produce 500,000 jobs per annum. All Tesla has is empty space that will need years of engineering and billions of dollars in order to achieve 500,000 units per year, something that no site in America has achieved. The General Motors Lordstown plant is one of the largest output plants in the US and production there ran about 350k - 450k.

    Toyota's Georgetown complex might exceed 500k units, Toyota seems to do a good job masking production by assembly line. Georgetown is a large complex. Tesla does not have to capital or space in Fremont to replicate a Georgetown-like facility. I predict the Model S and Model X will be the only assembly lines at Fremont, perhaps 100,000 units/ year in a couple of years.
    Jan 6, 2015. 12:56 PM | 2 Likes Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    It has been brought up by a number of people on this forum that Tesla does not seem to capitalize engineering labor for installation of new equipment and design of new product. It is safe to say a large majority of the current "R&D" labor is for design of the Model X and for upgrades to the plant in order to produce the Model X. Design and tooling engineering costs can run 20% of the total product launch cost. The Model X will probably end up costing in the neighborhood of $1B when all is said and done but Tesla claims it is just too hard to segregate engineering cost by model program.

    That could be $100M expensed that should have been capitalized. How do you make a fair comparison with other manufacturers when these kinds of numbers are omitted from Tesla reporting. Perhaps a real accountant can weigh in because these are complex accounting issues. Still, my understanding is that the IRS does not give much leeway when accounting for engineering as capital in new product programs.
    Jan 6, 2015. 12:19 PM | 2 Likes Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    "You can count on costs reducing by 5 to 8% for every doubling of output. You can count on output doubling with the X and doubling again when the high capacity battery comes out."

    Where do you get this stuff? This is not the electronics industry. Your insinuation that manufacturing costs will be reduced by 10-18% in the next year or two is crazy. Can you give any reasonable explanation for this?

    Tesla is putting in tons of capital equipment to get Model S production up to speed and are now installing even more equipment to do Model X production, probably to the tune of $1B when the Model X is at planned rate. Tesla refuses to account for this capital in a way that makes sense to investors.
    Jan 1, 2015. 11:47 PM | 4 Likes Like |Link to Comment
  • Why Does Tesla Not Appear In The Detroit Auto Show Press Conference Schedule? [View article]
    double E,
    "estimating quarterly sales midway into the quarter is a lot easier than it would be for a GM where the majority of sales are made from dealer inventory."

    That is not how the sales reporting is handled with GM (or Toyota for that matter). The major manufacturers provide excellent transparency on production volumes on a monthly basis. Check out the detail for Toyota monthly reporting, then compare it with the aggregated quarterly numbers and then decide if you think Tesla is being upfront with investors.
    Dec 16, 2014. 04:45 PM | 2 Likes Like |Link to Comment