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Bryce_in_TX

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  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @David RG,

    "Bryce - You and I will have to completely and utterly disagree on this one. The R&D Tesla is doing, along with other auto manufacturers is largely to benefit all models. Knowledge from one project is transferred to the next. Battery R&D for example, will absolutely not be specific to the X vs. the S. "

    I will refer you to the link below:

    "Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems, or services, before the
    start of commercial production or use. An example of development is a car manufacturer undertaking the design, construction, and testing of a pre-production model."

    http://bit.ly/1HbZ0MV

    The general idea is that companies pursue R&D projects with expectations of positive returns from those projects, and the projects can be monitored and the realization or non-realization of expectations can be estimated as the projects progress. However, currently, under US GAAP, R&D outlays are treated as if they have no future benefits. So, conceptually, the current approach FASB uses is incorrect. Conceptually, R&D expenditures have future benefit. FASB needs to rethink this, IMO.

    BTW, under current US GAAP, the costs of materials, equipment, and facilities having alternative future uses, in R&D projects or otherwise, are capitalized as tangible assets. So, your statement that the R&D benefits all models is in alignment with this. I don't see a problem. Capitalize the intangible costs and amortize them when they have alternative future uses, like US GAAP does with tangible assets. See item 11 in link:

    "Materials, equipment, and facilities
    . The costs of materials (whether from the enterprise's normal inventory or acquired specially for research and development activities) and
    equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) shall be capitalized as tangible as
    sets when acquired or constructed"

    http://bit.ly/1CsImeq

    I see your point with marketing costs. This also is an intangible, so if it can meet the requirements of IAS 38, why wouldn't you capitalize it also?
    Mar 20, 2015. 08:55 PM | 1 Like Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "@bryce: I think they will survive and make great cars. I think their valuation is absolutely insane. I see people keep saying Musk has denied the need for extra cash and think what the hell are they smoking. When they announce extra financing I think it will cut the company to the point where it finally makes sense to buy. "

    I hear you. I think the stock price is insane too, but I don't get into those discussions. No offense bulls. Just my opinion.
    Mar 20, 2015. 02:26 PM | 1 Like Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @boxman22

    Unlike ICE vehicles, there were new technologies to develop with a totally EV like the Model S and things to test out in the real world. I view the development of the EV more like research and development of a pharmaceutical drug than the development of, say, a "widget". It took some time for all of that research and development to be tested and get to a point where they could feel comfortable that the technology was advanced and reliable enough to produce the Model S.
    Mar 20, 2015. 12:31 PM | 2 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @boxman22

    "Also why say 2012? They started developing the model S in 2008. Most "startups" are not measured from when they already have a product in the market but getting that product to market. "

    I am sure there are better examples, but I have provided an example of that line of thinking with the shopping mall in my city. I thought similar with it. "Sikes folly", the poor guy started what he couldn't finish, needed more capital. That was 1971. Three years later the Mall was finished and opened for business. It still flourishes today. Musk almost went belly up in 2008, but got an infusion of more capital at the buzzer. It's too early for me to just write the company off. Look at the financials from the growth in assets, liabilities, revenues, expenses, cash flows. It's evident from that they are just beginning to scale operations and grow.
    Mar 20, 2015. 12:11 PM | 3 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "Thank you, David RG, Earnings are opinion, but cash is fact. The non-GAAP vs GAAP issues are moot in cash discussion."

    "You are missing the point entirely. THEY ARE GOING THROUGH CASH AT AN INSANE RATE. "

    So now it appears what you were talking about is overall cash flow, not just CFO. That is cash basis accounting which disregards credit transactions altogether. That doesn't tell you how well a company is doing performance or profit wise in an accounting period, it can't because it only measures cash receipts and disbursements and disregards when the revenue was earned or when the expense was actually incurred.

    See pages 79-81 in link, "Accruals---Cornerstone of Accounting:
    "Financial statements are primarily prepared on an accrual basis. Supporters strongly believe that accrual accounting is superior to cash accounting, both for measuring performance and financial condition.
    Statement of Financial Accounting Concepts No.1
    states that 'information about enterprise earnings based on accrual accounting generally provides a better indication of enterprises’ present and continuing ability to generate cash flows than information limited to the financial aspects of cash receipts and payments.'"

    http://bit.ly/1MEhPtS

    Your argument is rejected by the accounting profession for the reasons stated on the pages I cited and by the example given there.

    I have cited a number of times that at this stage of growth, it is normal for the company to have negative CFO and investing cash flows, and positive financing cash flows.

    I haven't missed the point at all. I have explained why I am not that concerned at this point.

    It appears to me that where we disagree is on the issue of whether Tesla is in the growth stage or is a mature company. I believe it is in the growth stage. I don't see how you can view it as "mature" with just its first mass production vehicle launched 2.5 years ago. When the company registered its articles of incorporation and officially opened for business is irrelevant. Look at its financials. Assets, liabilities, revenues, expenses, and cash flows are growing by leaps and bounds. The company is clearly in its infancy as far as its financial prospects are concerned.
    Mar 20, 2015. 11:47 AM | 5 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "Bryce lets get one small point clear already. You agree they will almost certainly need more financing soon? "

    I am on record as saying this year.
    Mar 20, 2015. 11:16 AM | 2 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "You are missing the point entirely."

    No, I am going on what you have said, specifically, and pointing out it is incorrect. CFO is impacted by capitalized development costs. You said it wasn't. Those costs benefit more than one year, and it takes time to see a yield from them.

    I never said they wouldn't need more external funding. Just the opposite. I said they are buying assets and it takes time to get a return on those assets.
    Mar 20, 2015. 11:15 AM | 3 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @Dogfellow,

    "Tesla Cash flow from Operations FY 14 (unaffected by GAAP/non-GAAP folderol because Cash Flow nets out all the non-cash items like stock compensation and depreciation): ($57M)"

    I'd suggest you need to brush up on Cash Flow. In the link, page 1437, is the chapter on it.

    "1. Operating activities
    involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payments to suppliers and employees for acquisitions of inventory and expenses.

    2. Investing activities
    generally involve long-term assets and include (a) making and collecting loans, and (b) acquiring and disposing of investments and productive long-lived assets.

    3. Financing activities
    involve liability and stockholders’ equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed, and (b) obtain-ing capital from owners and providing them with a return on, and a return of, their investment."

    http://bit.ly/18F9AAD

    Note that the determination of Operating Cash Flow involves transactions that go into determining Net Income or Loss. By capitalizing development expenditures, rather than expensing them, they are classified on the balance sheet and not the income statement. By taking them out of the determination of Net Income or Loss (as expenses on the Income Statement), the Net Income or Loss figure changes, which changes your operating cash flow, because you calculate operating cash flow starting with Net Income or Loss.

    Note: GAAP definitions of cash flow impact operating cash flow. If development expenses are capitalized, and not expensed, that impacts operating cash flow, as I have explained. It also impacts cash inflow or outflow from investing activities.
    Mar 20, 2015. 02:13 AM | 1 Like Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    " The non-GAAP vs GAAP issues are moot in cash discussion. "

    They are moot as far as total cash that inflowed or outflowed for the year. But to know that, you have to sum up CFO, cash inflow or outflow in investing activities, plus cash inflow or outflow in financing activities. GAAP is not moot when it comes to CFO by itself.
    Mar 20, 2015. 01:36 AM | 2 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "Truth: Forget about VW. It's not germane here.

    Tesla Cash flow from Operations FY 14 (unaffected by GAAP/non-GAAP folderol because Cash Flow nets out all the non-cash items like stock compensation and depreciation): ($57M)"

    Yes, the way R&D is treated is very relevant. If some is treated as an investment, which it is conceptually because it benefits more than one operating cycle/year, it is classified as "cash flow from investing activities". That means it is taken out of "cash flow from operating activities (CFO)" which increases "cash flow from operating activities (CFO)". That ($57) million in negative CFO is then decreased by whatever amount is taken out. There were $464 million in R&D in 2014. So if half of that, $232 million were taken out of CFO that changes the CFO from a negative ($57) Million to a positive $175 million.

    AS I have said repeatedly, in the growth stage a company's normal CFO and cash from investing activities is negative, while the financing cash flow is positive. The "cashburn" is buying assets that Tesla hopes will produce a positive return. You have to buy the assets first, before they begin to yield a positive return on investment.
    Mar 20, 2015. 01:32 AM | 2 Likes Like |Link to Comment
  • Is Elon Musk Giving Up On Battery Swaps? [View article]
    boxman22,

    Amount of production and sales is not important? It is in cost accounting. They didn't start selling the S until 2012, in the middle of the year. So, the S has had 2.5 full years of sales. That is in the start up or growth stage to me. And it's just the first item they have developed.

    Cash burn is increasing because of the expansion. In 2012 they had 2000 employees, now they have 10,000. They are growing their service/sales centers, their supercharger network, capital expenditures for plant and equipment. All of this fits with the link I showed you, does it not? All of this infrastructure has to be in place before increased revenues. So, there is a reason for the cash burn and it is supported by the "norm" for companies in the startup and growth stages. The money they are spending is buying assets which they hope will produce reasonable returns.

    The past 2 years have seen positive real net income or break even, IMO. The 3 years before that saw net losses.

    You think GAAP gets it right. I don't and I have provided my reasons as to why.
    Mar 20, 2015. 01:11 AM | 2 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    I'm not arguing the stock price. Uncertainty yes. I need more data before I say yay or nay. I just don't know at this point. For me, it's too early to make a judgment. But GAAP sure as hell needs some improvement.
    Mar 20, 2015. 01:01 AM | Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "Bryce - On capitalized R&D: the fact that VW does that doesn't make it not an operating cash flow. With their statements (and since they clearly break it out), I would reduce their OCF by that amount."

    I think we are on different wave lengths. The $4.6 billion of capitalized development expenses is not included in the total of $10 something billion of operating cash flow. Under IFRS it is an investing cash outflow, not an operating cash outflow. If it were an operating cash flow under IFRS, which means it benefits only the current operating period/year, it would be included in operating cash flow on the cash flow statement. It benefits more than one year or operating cycle, so it is viewed as an investment and is capitalized, just as PP&E is.

    "Finally - if you are OK with them being FCF negative for 12 consecutive years, at what point does your patience run out? When do they produce flows to fund via internally generated CF?? For goodness sakes, Intel didn't take this long and they are in the most capital intensive industry out there, spending $10 billion a year on Capex, year after year. "

    Good question. I am hoping the next 2 years will shed some light on that, pro or con. With an increase in production of 55,000 vehicles or about this year, and 100,000 in 2016, the gross margin on each sale should begin to catch up with expenditures and expenses, I would think. I suspect the competition coming into the arena now will light a fire under Musk to develop the Model III faster, it would me anyway, and would hope to see it in production in 2017. I'd say by the end of 2018 we should see much more favorable financials, I would hope so anyway. By that time I would think investors, analysts, and creditors would have enough info either to go with throttle up or throw in the towel.
    Mar 20, 2015. 12:51 AM | 2 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @Cecil,

    Please understand I am not a bull, but see things differently than I did a week ago. The Tesla story is still in question to me, but to me there are some inaccuracies being spread by those I perceive as bears. I'm just trying to educate whoever might read the posts with my views of what I see as true. I hope Tesla will be successful.
    Mar 20, 2015. 12:09 AM | 3 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "Bryce - one more thing. Are you aware that Tesla is now 12 years old?? This is not a young startup company any more."

    I am aware of when they started, in 2003, yes. I don't see that chronological age has anything to do with the amount of production or resources expended. I was trying to find an example of another company which took years to reach profitability, but my experience here is almost 'nil. The only example I could think of was a story from my hometown, Wichita Falls, Tx.

    Back in 1971, when I was a junior at the local university, I lived on Gayle St. That street was located very close to a shopping mall which had started being constructed a year or two or more before that. I can't find its history prior to 1973. The Wiki article on the Mall is wrong as far as when construction started on it. Anyway, in 1971, the concrete outer shell had been constructed, but that's as far as they got with it then. I assume they had run out of cash to finish it. It was called "Sikes Folly" for the name of the person or family who was providing the funding for it. I would jog by it on weekday mornings before school, johnson grass growing up all around it and it just looking like a ghost town.

    They began working on it again in 1973 and it was completed in early 1974 and opened up for business. My guess is it took over 4 years from the start of construction to the time it opened for business. It's still going strong today.

    My point is, many people, including myself, thought it was a total waste of money, just rotting like that before they came back and finished it.

    I view Tesla as a startup in 2012, the Roadster having been more a prototype that they came out with at first to see how their technical skills matched with real world conditions. Tesla never really began mass producing cars until the Model S, IMO. I think it's too early to make a judgement call on whether they will be successful and the cash flow at this stage matches what you would anticipate from a company in its infancy of growth. Whether they will be able to fund all of their ambitious goals is in question to me, as for now most of the funding is coming from debt or equity, rather than cash flow from operations. I just think it's too early to say they won't be successful.
    Mar 20, 2015. 12:04 AM | 2 Likes Like |Link to Comment
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