Now, the Good News for Tesla

Analysis of the Losses-Revenues Data A New Measure of Profitability (MPR & MCR)

Above: Elon Musk, co-founder of Space X and Tesla Motors speaking at Caltech, during the commencement ceremony at Pasadena, CA on June 15, 2012. Below: Tesla’s Model S being driven near its factory at Freemont, CA on June 22, 2012. Musk has disputed the claims made in a New York Times article (by John Broder) on February 8, 2013, that the Model S performed poorly during a cold weather test drive between Washington DC to Boston.
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Table of Contents
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1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Summary Introduction Break-even Model for Profitability Quarterly Profits (Loss)-Revenues and Breakeven Point SpaceX and Tesla: My Facebook Post on Feb 26, 2013 Appendix 1: Annual Profits (Loss)- Revenues 2007-2012 Appendix 2: Tesla Motors: The Power of Calculus References cited and related articles About the author Two relevant articles on Tesla reproduced

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The Space Exploration Technologies, or SpaceX, Dragon spacecraft with solar array fairings attached, stands inside a processing hangar at Cape Canaveral Air Force Station, Fla. The spacecraft will launch on the upcoming SpaceX CRS-2 mission. The rocket was successfully fired in a pre-launch test (on Feb 25, 2013, 1:30 PM) ahead of the Friday launch (Mar 1, 2013) to carry supplies and scientific experiments to the International Space Station.
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§ 1. Summary
The profits (loss)-revenues data for Tesla Motors, Inc. for the eleven consecutive quarters ending Dec 31, 2012 is analyzed here using the classical breakeven model for profitability of a company making and selling N units of a single product. This can be shown to lead to the remarkably simple linear law y = hx + c = h(x – x0), relating revenues x and profits y. The slope h is the rate of increase of profits with increasing revenues, i.e., h = ∆y/∆x where ∆x and ∆y are the changes in revenues and profits (or loss) between any two quarters of interest. The intercept c is nonzero and can be shown to be related to the fixed costs. The slope h here is similar to the marginal tax rate encountered in tax law. Hence, we will refer to h as the MPR, the marginal increase of profits with increasing revenues. Although Tesla Motors has not reported a quarterly, or yearly, profit to date, a careful analysis of the income statements reveal reducing losses with increasing revenues. This is equivalent, at least mathematically speaking, to increasing profits with increasing revenues. This is demonstrated here using a simple x-y diagram of profits (or loss) y versus revenues x. The slope h of this profits (loss)-revenues graph, rather than the profit margin (the ratio y/x), the conventional measure of profitability, is much more meaningful for a company like Tesla Motors. Extraordinarily high slopes h in the law relating profits (loss) and revenues observed. The MPR values of h = 2.53 and h = 6.43 are deduced which indicates a very high rate of conversion of additional revenues into profits (or loss reduction) as revenues increase. A significant improvement in the “cost structure” between 2010 and 2012 is also revealed if we consider the C-R (Costs-Revenues) graph. The C-R equation is of the type C = mR + k where the slope m of the graph is a measure of the MCR, the (marginal) rate of increase of costs with increasing revenues. For 2012, the data reveals m = 0.944 < 1 whereas for 2010 and 2011 the data shows that m > 1. Hence, the future profitability of Tesla Motors appears to be promising. (Disclosure: The author has currently no financial interests in Tesla.)
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§ 2. Introduction
After engaging in what seemed like a lawyerly exchange about what a New York Times reporter did or did not do, during that infamous test drive on a cold wintery day, from Washington DC to Boston, the CEO of Tesla Motors Elon Musk, has now acknowledged that the negative NYT report has, nonetheless, hurt the company’s image and sales. Tesla stands to lose as much as $100 million due to canceled orders, Ref. [1,2]. As an engineer with advanced degrees, and as one who has spent all of his professional career in the R & D environment, including the automotive industry, and especially as someone who has struggled through all the hurdles to be overcome to take a concept from the R & D stage all the way to commercialization (at the old pre-bankruptcy General Motors R & D Labs) nothing would make me happier than to see Tesla Motors succeed. However, one of the comments to the article noted above says it all and is reproduced below. What the Times test does illustrate is how much external variables will affect your range. If it’s too cold, if you use the heater, air conditioner, radio, if you drive too fast or too slow, your range will be truncated. Yes, a gasoline engine will see a shorter range if you drive fast but your range won't drop in half. ….. This is a good summary of what happens with a vehicle in the real world. This is what happened when the NYT reporter, John Broder, did his test drive. Many potential customers could identify with this reality. Hence, the canceled orders and the loss of revenues, estimated at as much as $100 million (1000 vehicles at an average price of $100,000 per unit). Nonetheless, Tesla’s goal was to deliver 20,000 vehicles in 2013 and reach the production goal of 500 vehicles per week, which translates to 6000 per quarter, see Ref. [3]. The company delivered a total of 2,650 vehicles to customers last year, including 2,400 in the fourth quarter. The delivery goal for the first quarter of 2013 is 4,500. We will now briefly review the classical breakeven analysis for the profitability of a company and then use it as the basis for analyzing the available financial data for Tesla Motors. The data compiled in Table 1 was obtained from the quarterly and annual shareholder letters, see links given with the reference list.
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The total costs C associated with the production and sale of these N units is the sum of the fixed costs “a” and the variable costs “bN” where “b” is the unit variable cost.94 -51. The slope h = (p – b)/p = 1 – (b/p) is determined by the ratio of the unit variable cost “b” and the unit price “p”.24 36.33 Profits (Loss).29 49. we Page | 5 . Using N = R/p.49 -89. The total cost C = a + bN = a + (b/p) R since N = R/p.Table 1: Profits (Loss)-Revenues Data for Tesla Motors Quarter Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Quarter Ending 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 Revenues.38 30.90 -65.80 -89.87 -105. This means that profits will increase as revenues increase following a simple linear law. the costs-revenues graph is a straight line with slope (b/p) and a positive intercept equal to the fixed cost “a”. because of the fixed costs “a”.65 50.60 -110. this can also be rewritten as P = [(p – b)/p] R – a. The total revenues R realized from the sales is R = pN where “p” is the unit price. § 3.17 57.03 58.08 -81. Instead of these descriptive symbols. Breakeven Model for Profitability Consider a company (such as Tesla Motors) making and selling N units of a single product (in this case the Model S).52 -34.94 -58.10 306.67 39. Hence. Since Profits = (Revenues – Costs) for all companies.17 26.93 Source: Quarterly Shareholder Letters of Tesla Motors. The intercept is nonzero. y (millions) -38.36 -48.41 31. it follows that the profits P = (R – C) = pN – a – bN = (p – b)N – a. x (millions) 28.

(3) …….. it follows that the profit margin will vary in a complex (and often confusing) manner as the revenues increase or decrease.(2) Intercept c = .a negative of the fixed costs Breakeven revenue x0 = . Profit Margin.. denoted as x0.will now rewrite the profits-revenues law as y = hx + c where x is revenues and y is the profits (or loss.. Although a simple company with a single product line has been considered here. p) which determine the fundamental cost and revenue factors for the company.(1) Slope h = 1 – (b/p) related to unit variable cost b and unit price p ……. Several articles discussing this methodology may be found at this website.a = 0. Hence. if a negative value). The “breakeven” revenue depends on the triplet (a... it should be noted that the slope h represents the rate of increase of profits with increasing revenues and is similar to the notion of the marginal tax rate encountered in tax law. can be determined by preparing the x-y graph and extrapolating to determine where the graph cuts the revenues axis. b. The MPR is obviously very different from the familiar profit margin. Since the fixed cost is NEVER equal to zero. the marginal rate of increase of profits with increasing revenues. which is the ratio y/x. we will refer to h as the MPR. This “breakeven” revenue. depending on the numerical values of h and c.c/h = ap/(p – b) ……. Profits revenues law y = hx + c = h(x – x0) ……. it can be shown that the same model also applies when we consider much bigger and larger companies with many products and hence multiple revenue streams.(5) The profit margin y/x = h = MPR if and only if the intercept c = . Finally. Both positive and negative values of Page | 6 .(4) Notice also that profits will go to zero at a finite revenue. y/x = h + (c/x) ……. given by equation 4 above. Some key references have been included at the end of this article.

Thus we can determine the “breakeven” point. means “c” must always be negative). The line item “Total revenues” is what is meant by reveneus R in the following analysis. Inc. which includes provisions for income taxes.h are observed in practice and empirical observations also reveal positive and negative values c (although fixed cost a = . Condensed Consolidated Statements of Operations (Unaudited) (In thousands. Profits = (Revenues – Costs) P = R – C = [1 – (b/p)]R .c. P in the following analysis. except per share data) Image of the relevant section from page 12 of the Form 8-K filed on 2/20/13 by Tesla Motors. This total costs C thus includes the line item called “cost of revenues” and all of the line items under “Operating Expenses”.Profits C = R – P = (b/p) R + a Page | 7 .a Costs = Revenues . we apply the basic statement of finance to these two line items to determine the Total Costs C as discussed here. Tesla Motors. Inc. The line item “Net loss” is what is meant by profits (losses). The empirical observation of both positive and negative values of c is related to real world complex systems which will involve an “averaging” of the revenues and the costs over several product streams. Of immediate interest to us are the two line times indicated by the arrows. We will now discuss the actual financial data for Tesla Motors. Thus. using the classical breakeven model for the profitabillity of a company making and selling N units of single product (such the Tesla Model S here).

0 40.0 10.0 70. .0 30.0 0.0 20.0 -20. The data point for Q4 2012 is outside the scale of this graph. Inc. y [millions] -40.0 -120.0 -60.0 Profits. Profits (Loss)-Revenues Diagram and Breakeven Point Although revenues increased phenomenally in the fourth quarter of 2012 Tesla was not able to report a profit because of greatly increased costs associated with the manufacturing process. Although the term “profits” is used. see Figure 1. Revenues.0 80.0 -80. if we overlook this one exception data point. see Ref.§ 4. we see a remarkable trend when the data is presented graphically in the form of a profits (loss)-revenues diagram.0 60. Page | 8 . [2]. it is understood that we are dealing with losses from the –ve values on the graph. x [millions] 0. However. for Q2 2010 to Q4 2012.0 50.0 -100.0 Figure 1: The profits-revenues diagram for Tesla Motors.

0 70.03 – 26. This means as revenues increase by an amount ∆x.0 60. we also observe a remarkable alignment of several data points along an upward sloping line. The cost structure will no doubt change as the number of units sold N increases in the future.40. or about $70 million.532x – 173. The slope h = 2.38. Mathematically speaking. The straight line labeled A passes through the data points for Q2 2012 (26.1 Figure 2: The profits-revenues diagram for Tesla Motors.0 -100. -81. Two other data points. This means that as revenues increases. the graph has a positive slope. this is equivalent to an increase in profits with increasing revenues and hence a positive slope h = ∆y/∆x.0 -20. This provides one estimate of the potential profitability at these low sales volumes.94).38 and ∆y = (-48.65) = 22.65.0 -140.0 -80.0 -120. considering the data for quarters ending Jun 30.66 Page | 9 . losses decreases. the two extreme points on the graph. 2011.0 Revenues.0 10.36.0 20. -48.6)) = 56. Hence. Extrapolation to higher revenues thus leads to the breakeven point of x0 = -c/h = 68.0 20. For example. for Q2 2010 to Q4 2012. The equation of the line is y = 2.0 A y = hx = c y = 2.87) and Q4 2011 (39. 2012 and Mar 31.532x – 173.0 50.60) and Q1 2011 (49. Although the graph in Figure 1 reveals considerable scatter. -105.0 40.94 –(-105. i.. Q1 2012 (30. lie very close to this line.49). we get ∆x = (49.532 is very high.17. ∆y > 0. which is mathematically equivalent to an increase in profits.e. y [millions] 0.0 30. Inc. -89.0 -40.07.0 Profits. the losses decrease.0 80.03. x [millions] 0.0 -60.

Inc. The equation of the line is y = 6. -58. losses decreases. The intercept made by this line A can be computed using c = y1 – hx1 = y2 – hx2.17. this indicates that as revenues increases.0 y = hx = c y = 6. or equivalently. Q3 2011 (57.2.0 -80. This yields c = -173. This is illustrated in Figure 2. Again. or again about $70 million. for Q2 2010 to Q4 2012.434 is extraordinarily high. y [millions] 0. The straight line labeled B passes through the data points for Q3 2012 (50.10. (The virtual identity of the two x0 may be just a fortuitous coincidence. -65. The slope h = 6. This provides one estimate of the potential profitability at these low sales volumes.90).80) and Q2 2011 (58.0 20.0 -140. Extrapolation to higher revenues thus leads to the breakeven point of x0 = -c/h = 67.0 -100.0 -120.36.67. the graph has a positive slope. 40. x [millions] 0 10 20 30 40 50 60 70 80 Profits.434x – 433.0 -40.434x – 433. One other data points.2 Figure 3: The profits-revenues diagram for Tesla Motors.33.08) falls practically on this line. where the line A cuts the revenues axis works out to about $70 million. The “breakeven” revenue. Hence.0 -20. -1105.0 -60.069 and hence a positive value of the breakeven revenue x0 = -c/h = 68. profits increase.) Page | 10 .532.0 B Revenues. All the numbers here are in millions.and hence a positive slope h = ∆y/∆x = 2.

future costs and. we get ∆x = (58. it is still a rare metal and quite expensive. the 2013 Tesla Model S is severely obese and could easily shed a lot of pounds (up to 500 lbs. Lithium (Li) is the third element in the periodic table (the first being hydrogen and the second being helium. Indeed. with increase in the number of units N that are sold. thereby also increasing the vehicle’s range with no additional demands on its battery’s performance.16 and hence a positive value of the breakeven revenue x0 = -c/h = 67. But. The “breakeven” revenue. or even 1000 lbs). the two other extreme points on the graph. from the remarkably high values of the MPR. click here. will ultimately depend on the critical component. y = ax + b. see Ref.10) = 8. Both Mg and Al have played a significant role in the development of fuel efficient and lightweight conventional gasoline-powered automobiles and also airplanes. This is illustrated in Figure 3. The numerical values of the constants “a” and “b” can be deduced from the data for several vehicles. The same considerations apply to an all-electric vehicle like Page | 11 . With a curb weight of 4650 pounds (2114 kgs). where the line B cuts the revenues axis works out to be again about $70 million. In conclusion. [11]. we conclude that as Tesla gets its manufacturing and production issues under control.90 –(-110.17 – 50.Likewise. mpg) and x is the curb weight.90 and a positive slope h = ∆y/∆x = 6. The battery packs used in all-electric and/or hybrid vehicles are expensive. 2011.53 observed here. h = 6.33. This yields c = -433.07 and ∆y = (-58. The slope “a” is negative and reducing the vehicle weight by about 150 lbs improves the fuel economy by 1 mpg.434. The intercept made by this line B is computed using c = y1 – hx1 = y2 – hx2. Lithium prices have tripled. and as revenues increase in the future.43 and h = 2. 2012 and Jun 30. considering the data for quarters ending Sep 30. since 2000.80)) = 51. more expensive than magnesium (Mg) and aluminum (Al). it appears that profits will increase quite rapidly as the revenues. the lithium-ion battery. both gases at room temperatures) and is the lightest of all known metals (click here). the company can report a profit. Thus. hence profits. according to Bloomberg. that the fuel economy of a conventional gasoline powered vehicle increases with reducing vehicle weight following a simple linear law. where y is the fuel economy (miles per gallon. The present author has shown.

[13]. EB 110. These are outside the scope of the present discussion which is limited to assessing the potential profitability of Tesla by analyzing the profits (loss)-revenues data. the MPR which is related to the fundamental triplet. quarterly or annual. Inc. indeed. as shown by the additional calculations provided in Appendix 1. Bugatti.g. This is illustrated by the C-R in Figure 6. Pagani Zonda. Lambroghini Reventon). click here. to reduce weight and increase the fuel efficiency. The cost and development and the large scale mass production of such advanced lightweight materials (including development of the requisite supplier base) will ultimately determine the ability to ramp up production to even higher levels (example a million vehicles per year. b. instead of the traditional aircraft aluminum. Page | 12 . Porsche Carrera GT. and although costs exceed the revenues. analogous to the MPR) has decreased dramatically when we consider the data for consecutive quarter in 2012. That is. several of them are used in the 787). in the revised document uploaded today (February 27. uses advanced carbon-fiber composites for its body frame. from current goal of 20. see Ref. Finally. Further improvement in the analysis and projections of future profitability are possible by quantifying the fundamental triplet (a. Ferrari Enzo.the Tesla Model S.. although Tesla motors has never reported a profits. The Boeing 787 Dreamliner. the rate of increase of the cost with increasing revenues (MCR. known as the Supercars (e.000). Reducing the Tesla Model S weight will greatly improving the range of the vehicle. as well as the constant h. 2013). which has been much in the news lately for the wrong reasons (related to the fire risks posed by the lithium ion batteries used. p) and arriving at numerical values of these three constants. good news – nay great news – for Tesla Motors. Such carbon-fiber composites also find their use in the Model S and in ultra-expensive cars.

The NYT reporter complained that the battery did not last as long as promised. In the document just uploaded. its current "cost structure" provides the ability to become profitable in the near future. So.434 is observed for Tesla. 000 each. Not much time left for that. After first defending the battery's capabilities. with lawyerly arguments. The company's goal was to become profitable in Q1 2013. The MPR is the just name I have given for the slope of the profits-revenues graph. I have analyzed the financial data and suggested a new measure of profitability. called the MPR (short for the marginal rate of increase of profits with increasing revenue). if Tesla can repair its image and ramp up sales. Tesla has now acknowledged that many customers on the East Coast of the US have canceled their orders. But. 2012) at Cape Canaveral ahead of the Friday launch (Mar 1. The company has not reported a quarterly or annual profit since it went public in 2010. yes the Model S averages around $100K and is NOT for the average person).33 million in Q4 2012. Revenues increased from $50. The lost sales might total $100 million (1000 vehicles.§ 5. etc. It recently got bad press after a New York Times reporter took it on a test drive from Washington DC to Boston. A high MPR = 6. CEO and co-founder of SpaceX also heads Tesla Motors. a company called SpaceX successfully tested their private rocket yesterday (Feb 25. powering the devices like cellphones. Elon Musk. iPads. which means that losses decrease at a very high rate as the revenues increase. Page | 13 . The Model S is an all-electric vehicle (which uses the lithium ion battery that you can find practically everywhere now.). at $100. 2013) to carry supplies and scientific experiments to the International Space Station. The MPR. in cold wintery weather. is a much better measure of performance for a company like Tesla. SpaceX and Tesla Motors: My Facebook Post Dear All: For the technology enthusiasts here.1 million in Q3 2012 to $306. rather than the familiar profit margin (ratio of profits to revenues). the company still reported a loss.

Tesla has a recession-proof business model. The battery must charge and hold charge as promised. Tesla and SpaceX. 2013 (around 4:55 PM) ****************************************************************** Page | 14 .. entertainment etc. That is not a good idea. Remember. Musk. Performance and customer satisfaction is all that Tesla must focus on. Looking forward to the successful launch on Friday. When sales revenues increase. And.May be Q2 2013 for sure. they are looking for "value" for their money. no more disputes with dissatisfied customers. profits will follow. please Mr. to me. But. .. The car must deliver the promised range without inconveniencing the Very sincerely V. embody the American spirit. It relies on RICH customers who spend money like most ordinary folks spend on their luxuries like movies.. March 1. The company has already provided good jobs for many average folks. http://www. 2013. Laxmanan February 26..scribd.. They were also forced to work overtime (up 70 hours a week last year) as production hiccups were being smoothed out. I want you to succeed.

683 2010 116. Year Page | 15 . Thus.157 78.256 -396. Table 2: Profits (Loss)-Revenues Data for Tesla Motors Revenues.230 2008 14.782 97. [13-16]. as defined here to develop the breakeven analysis.469 Note: Since Profits = Revenues – Costs. Since profits are negative. Rather the values represent TOTAL COSTS as defined here to develop the breakeven analysis. the costs in the last column are seen to be consistently higher than the revenues. we can deduce the values given in the last column from the revenues and profits (loss) reported.740 167.653 2012 413. The revenues in the second column is the item called “total revenues” in the Consolidated Financial Data.072 2011 204. Also. This is the difference of revenues and profits. y Costs C = (R – P) (millions) (millions) (millions) 2007 0.328 271. This data has been compiled here in Table 2.§ 6. The profits (loss) is the item called “Net loss (profit)” which appears just before profits (losses) per share are computed.073 -78. Nonetheless we see a remarkably nice and linear relationship between revenues and costs and also revenues and profits. Tesla Motors appears to be far removed from its goal of becoming profitable in Q1 2013 or even the full year.213 809. Appendix 1 Annual Profits-Revenues Data (2007-2012) for Tesla and the Cumulative Quarterly Profits-Revenues Data The annualized values (as well as quarterly values) of the revenues and the profits (losses) for Tesla Motors can be found in the company’s filings with the United States Securities and Exchange Commission and also with other sources cited in Refs. The last column represents the total costs C.744 -154.524 2009 111. This is illustrated in Figures 4 and 5. a similar analysis of the quarterly data (Table 3) reveals some “good news”.242 -254.411 458. considering this annual data.943 -55. This is NOT the same as the item “cost of revenue” mentioned in the financial statements.742 -82. x Profits (Loss).

The slope m = 1. where the slope m = 1. with slope m = 1 and intercept k = 0 is the breakeven line. the data for 2007 and 2012. The equation of the “operating” line is thus C = mR +k.0 500. Tesla Motors must deviate from its present operating line and approach the line C = R in order to become profitable.1 Breakeven line R = C Slope m = 1. The mathematical equation y = hx + c relates profits y and revenues x with the slope h = (1 – m) and the intercept c = . C = (x – y). as defined here to develop the breakeven analysis.0 200. Page | 16 .1 with all values being in millions.0 600.900.0 700. x [millions] Figure 4: The Costs-Revenues diagram for Tesla Motors. The total cost C is exactly equal to the revenues R as we move up this line. [millions] 800.0 Operating line C = mR + k = 1. for 2007-2012.0 200.0 0.77 + 78.0 0. all the other data points can be seen fall on a remarkably perfect straight line. deduced from the consolidated financial data from the various SEC filings. k = 0 100.0 500. Inc.0 100.0 300.0 400. The red line. The annualized profits-revenues graph is a mirror image of this graph.0 Revenues. The total costs C = Revenues – Profits. With the exception of the data for 2009.77 and k = 78.0 Costs. with the equation C = R. The slope m was fixed by considering the two extreme points.0 300.0 400.k.76 is a numerical measure of how fast costs are increasing with increasing revenues and may be called the MCR (marginal cost with increasing revenues).

revealed a negative slope h as we see here before they “turned the corner” and became profitable. Tesla became a public company in 2010 and so a turnaround in 2013 would be consistent with the trends observed with other successful companies.0 200. c = . C = mR + k. y [millions] -100. for 2007-2012.0 Profits. Again.k.0 Figure 5: The annualized Profits-Revenues diagram for Tesla Motors.0 100.78.0 500. for example. The following numerical values for the constants m and k in the equation.0 -200.k -300. Tesla must start deviating from this downward sloping line and the slope h must become positive (as with the quarterly data). Since Profits = Revenues – Costs.0 -500. With both Google and Southwest Airlines.0 300.0 0. we see a remarkably linear relation. it follows that the slope h = (1 – m) and the intercept c = .Revenues. deduced from the consolidated financial data from the various SEC filings.0 400. Google and Southwest Airlines.0 Operating line y = hx + c = -0.77 . with the 2009 data point being an exception with lower losses. The quarterly data from Table 1 can be analyzed in an exactly similar manner. x [millions] 0. A study of the financial data for several companies indicates exactly similar trends. Page | 17 .0 -400. see references cited. Inc. the turned around happened after two full fiscal years.1 h = (1 – m).

Also.42. Hence.26 The C-R equation for 2012 is C = 0. This also reveals a remarkable linearity as we see in Figure 4 for the annual data. the slope m = ∆C/∆R = 0.944R + 107.869R .52 66.18 36. see Figure 6. we can deduce the values given in the last column from the revenues and profits (loss) reported.97 117.25 50.94 66.36 87. see Figure 7.87 120.69 97.772 Note: Since Profits = Revenues – Costs. This is also evident from the dramatic change in the slope of the graph of cumulative revenues and cumulative costs for 2012.67 -65. for 2012.can be deduced after examining the C-R plot.03 -48.86 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 28.93 31. Rather the values represent TOTAL COSTS as defined here to develop the breakeven analysis.08 39. This implies that costs are rising (∆C > 0) at a lower rate than the increase in the revenues (∆R > 0).75 120.65 The C-R equation for 2011 is C = 2.10 -110.04 26. y Costs C = (R – P) (millions) (millions) (millions) 30.17 -58.93 396.33 -89. Table 3: Quarterly Costs-Revenues Data for Tesla Motors Quarter ended 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 Revenues.629R .17 -89. We do not see the same change in 2011. Although the company has not reported a profit to date.90 57.24 -34.38 -81.94 58. This is NOT the same as the item “cost of revenue” mentioned in the financial statements.944 < 1.60 132.7.65 -105.41 -38.093 49.49 The C-R equation for 2011 is C = 2. x Profits (Loss). the “cost structure” for Tesla has already improved in 2012. the slope m > 1 for 2010 and 2011.29 -51.91 306.80 160.07 122. 30-Jun-10 30-Sep-10 31-Dec-10 Page | 18 . and costs are greater than revenues.

21 and 1.20 31-Dec-12 413.47 252.40 413.00 700.00 500.46 Cumulative values are the 3-month.00 400.00 0. R [millions] Figure 6: The dramatic change in the slope of the cumulative costs versus cumulative revenues in 2012 for Tesla Motors.74 809.00 0. C [millions] 800.00 500.04 30-Jun-12 56. x (Loss).00 200.96.92 -216.00 200.00 The slope m = ∆C/∆R = 4.82 -195.Table 4: Cumulative Quarterly Costs-Revenues Tesla Motors for Data 2012 Cumulative Cumulative Profits Cumulative Costs Revenues.29 has decreased between consecutive quarters in 2012.00 400. Page | 19 . y (millions) C = (R – P) (millions) (millions) 31-Mar-12 30.00 300. 6-month. 9-month and the full year values 900. 100. 3.29 30-Sep-12 106. The rate of increase of costs.87 120.00 Cumulative Revenues.25 -200. as measured by the slope of the graph has decreased.00 300.00 Quarter ended Cumulative Costs.00 100.17 -89. Inc.00 600.

0 100.41 458. x (Loss).0 The slope m = ∆C/∆R = 2. R [millions] Figure 7: The cumulative costs were increasing at an essentially fixed rate with increasing revenues during 2011.20 -107. 300.05 30-Sep-11 164.79 31-Dec-11 204.0 Cumulative Revenues.65 Cumulative values are the 3-month.92 337.0 400. y (millions) C = (R – P) (millions) (millions) 31-Mar-11 49.) Page | 20 .24 -254.0 0. (A best-fit equation can be developed but this seems unnecessary at this point.03 -48.0 150.97 30-Jun-11 107.94 97.0 0.84 215.324R – 15. The straight line C = 2.0 100. 6-month.97 joins the two extreme points and has a slope m = 2.0 Cumulative Costs.87 -172. C [millions] 500. 9-month and the full year values Quarter ended 600.Table 5: Cumulative Quarterly Costs-Revenues Tesla Motors for Data 2011 Cumulative Cumulative Profits Cumulative Costs Revenues.0 200.0 200.0 50.324.32 is essentially constant between consecutive quarters in 2011.0 250.

24 36.97 203.103 713.29 49.67 39. $713.93 66.03 58.52 -73.82 -173.88 Table 6 provides the cumulative revenues.61 1488.11 220.36 -48.705 -685.94 -58.33 Profits P or y (millions) -38.10 306.94 144.70 1092. $1488.41 31.744 -379. Page | 21 .80 -89. profits (losses).664 -297.73 435.49 -89.94 -51.60 -110.141 260.435 Cumulative Profits -38.87 -105.76 318.18 87.761 -232.Table 6: Cumulative Profits (Losses).04 132. The difference is the cumulative total costs.65 50.07 122.08 -81.509 -775.97 117.81 558.17 26.52 -34.93 Costs C = (x–y) millions 66. is less than cumulative total of the negative profits (losses) which equal $775.999 407.45 931.435 million.441 Cumulative Costs 66. It is interesting to note that the cumulative total of the revenues.41 799.441 million.807 300. Revenues and Costs (2Q2010 to 4Q2012) Quarter ending 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 Revenues R or x (millions) 28.17 57.55 679.38 30.182 330.91 396.65 97.349 356.232 -469.105 -574.65 95.88 million. We will now considering the relationship between these cumulative values. and costs for all of the eleven quarters starting 2Q 2010 and ending 4Q2012.46 -124.90 -65.86 120.93 133.41 59.75 120.25 160.26 Cumulative Revenues 28.

111R + 6.99. 5 in this cumulative reckoning). C [millions] 2000 C = mR + k slope m = ∆C/∆R = 1. Between Q2 2010 and Q2 2011(quarter no.11 C = 2.29 C = 1. as shown by the solid straight line with the equation C = 1. R [millions] Figure 8: The cumulative costs and revenues for all eleven quarterly beginning with quarter ended 30 June 2010.99 1500 1000 500 C = mR + k slope m = ∆C/∆R = 2.349 million for Q1 2012 (instead of starting with $30.294R + 565. There was an acceleration in the rate of increase of costs after Q2 2010 and then a dramatic slowing down of the rate between Q3 2012 and Q4 2012. The cumulative revenues had increased to $330.95 joins the Q2 2010 and Q2 2011 data points. (Best-fit equation can be developed instead of the dashed line but this seems unnecessary.2500 Cumulative Costs.) The fact that Tesla has “moved back” to the same operating line – the dashed line – indicates that there is an underlying “cost structure” that can be analyzed using. The straight line C = 2.294R + 565.111R + 6.25 million). costs were increasing at an essentially fixed rate with increasing revenues during 2011. Extrapolating from this line gets us almost exactly to the cumulative revenues reported at the end of Q4 2012. Page | 22 .95 0 100 200 300 400 500 600 700 800 900 1000 0 Cumulative Revenues.17 in Table 4) and to $713.435 million for Q4 2012 (instead of $413.

R [millions] 0 Cumulative Profit.m).11R – 6. This nonlinear behavior is discussed in more detail in the companion article to arrive at an estimate for the breakeven revenues. Cumulative Revenues.k P = .11R – 6. Page | 23 . The equation of this line is P = -1.95 Q4 2012 -600 Q3 2012 -800 -1000 Figure 9: The cumulative profits (losses) versus cumulative revenues for all eleven quarterly beginning with quarter ended 30 June The Q4 2012 data falls practically on the original operating line. with a negative slope. P [millions] 0 -200 200 400 600 800 1000 Q2 2011 -400 P = hR + c slope h = (1. Then losses started increasing at a higher rate until Q3 2012 and then abruptly slowed to the lower rate indicated by the two dashes lines.scribd. Tesla operating along the solid line. This is also confirmed by cumulative profits versus cumulative revenues graph. see http://www.1. a nonlinear model. c = . determined using the two end points.perhaps. between Q2 2010 and Q2 2011.95.

not the ratio s/t. This is what you have to do merge into a highway from the entrance ramp. one cannot understand physics or chemistry. highly public. in the small time. especially physics and chemistry. : The Power of Calculus My Facebook Post on February 27. The same goes for acceleration a = dv/dt. Indeed. in response to another post. Without understanding meaning of the rate of change. v. or change in velocity. The speed of a car. dispute involving the all-electric Tesla Page | 24 . Now. You have to increase your speed in a very short time to avoid getting into an accident with another fast moving car(s). not s/t. or to overtake another car. not the speed. This is the change in speed. The ratio s/t is an “average”. 2013 (~12:35 PM) Dear All: Sometime back I had noted. The key concept introduced in calculus is the “rate of change”. or its velocity. is the “small additional distance” traveled in a “small additional time” called “dt”. dt. as it applies to financial data. here's an interesting reason to think about rate of change. If the car is traveling at 60 mph. dv.§ 7. Mathematically v = ds/dt. Appendix 2 Tesla Motors Inc. that Newton had to invent a new field of mathematics called calculus before he could develop his theory of gravitation. it means that it will travel 1 mile in 1 minute (a mile a minute). and the advances made in these fields would NOT be possible without calculus. is the rate of change of distance s with respect to time t. After a recent. or rate of change. Biology? May be! Economics and finances? You can literally commit murder here using ratios and never have to think about rate of change and no one will ever know about all the dead bodies that you left body because you never thought about the difference between y/x and dy/dx. as we learn on the first day in our calculus class. where “ds”. what we now call science.

Now SpaceX will introduce American free enterprise into this equation. I find that dC/dR. Here’s what I found about the financial situation with Tesla Motors Inc. the negative publicity has hurt Tesla and Musk has now acknowledged that several customers had canceled their orders -. --. is also the CEO and co-founder of Tesla Motors Inc. which would greatly reduce the range of the vehicle.which will mean a loss of $100 million in revenues (1000 vehicles at $100. the only source of power) did not perform well and the trip had to be aborted. This is a private company which will now take supplies and (equipment for scientific experiments) to the International Space Station. Although Tesla has not reported a profit.000. and although its costs have increased even as its revenues increased (more than 500% between third and fourth quarter 2012). Elon Musk. which is marketing the all-electric Tesla Model S. the first one to do so after Ford Motor company went public in the 1950s. I got interested in looking at the “all-electric” vehicles and their performance again.000 each). This electric vehicle is not for the average Joe Blow out there -. were the only methods of reaching the ISS so far.a true American car company that went public in 2010. The CEO and co-founder of SpaceX. Tesla has NOT yet reported a profit. back to calculus and rate of change. the rate of Page | 25 . Here’s the interesting thing I found out. The 2013 Model S Tesla (tested by Car and Driver. since it became a public company in 2010. The test drive was also conducted in cold wintery least not yet. Tesla and its CEO recently got into a public “dispute” with a New York Times reporter who drove the car from Washington DC to Boston and then published a NEGATIVE report saying the battery (lithium-ion. Anyway. Now.Model S. In yesterday’s post I had called attention to the test-firing of rockets by SpaceX. ahead of the launch on Friday (March 1. NASA's space shuttle. Tesla had earlier reported that they will “turn the corner” and become profitable in the first quarter of 2013. and its Russian counterpart. I also started studying Tesla’s financial data. 2013). recently) has a price tag of almost $100.

and then took averages of s/t. but this lack of appreciation of the need to apply the principles of calculus to financial data is a BIG BIG part of the problem we have with all the Wall Street excitements and their gloom and doom predictions. the rocket will end up in your backyard instead of heading towards the ISS! Unfortunately. The Tesla Motors data. that I have analyzed and presented (see link given). But. etc. we have to do. is a very good example. This is why scientists could tell us that the asteroid will NOT collide with the earth (never mind. This is most dramatic in 4th quarter of 2012 when the company's revenues literally “exploded”. with financial data and economic data in a consistent manner. other than an academic discussion. another meteorite came a few hours before and no one knew!). marginal cost. Page | 26 . next week. I have yet to see it being applied CONSISTENTLY to financial data. we deal with concepts like marginal tax rate. by considering the rate change and the “direction” of the velocity. Now. Is this idea of dC/dR new? Not really. what we do with data in physics and chemistry. The rate of change calculations is also the reason SpaceX will successfully launch its rocket on Friday. we can make successful predictions about where a moving body will be in the next hour. marginal revenues. All you see Wall Street talking about is profit margins and earnings per share. Both are ratios which have nothing to do with the rate of increase of profits with increasing revenues. That is how they wreck many good companies -. Wall Street has never done it.increase of cost with increasing revenues is actually decreasing. indeed. that is what Wall Streeters do every day to provide what they call “earnings estimate” . In economics.this is why it happens every day on Wall Street and the guys who do it are laughing all the way to the bank as they say it! Sad.remember I told you about getting away with committing murder and leaving a trail of dead bodies and getting away with it all --. marginal profits. next day. increasing from about $50 million to more than $300 million. or even next minute. In physics. if SpaceX did calculations of s/t instead of ds/dt.

:) :) :) http://www. The graph here tells us about the rate of increase of costs with increasing revenues. accountants don't apply what they learned in their calculus class when they analyze their financial reports!) Congrats.Teachers and parents -. The changing slope (decreasing slope) of the graph means that Tesla can become profitable in the near future. Page | 27 . You just have to be a good student of calculus and understand how to determine “rate of change” and the derivative when you see a table of x-y values. if you came this far. The graph presented in Figure 6 (on page 18) of this document.scribd. The company has reported losses of more than $1 billion since its operations began. Always try to prepare a graph and compute the slopes. (Sadly. in appendix 1. It illustrates the real meaning of the rate of change that I have going on and on with. You don't need to be an accountant to understand this. There is nothing in the financial data of Tesla Motors (if analyzed using conventional methods) that suggests a new potential for profitability in the near future.please pay attention. tells a different story.

time. Feb 14. 7. 2013. Tesla Test-Drive Controversy Misses the Big Picture. Time Tech. http://www.teslamotors. Feb 21.html 4. http://www. The Christian Science Monitor. Technology. Tesla’s Explosive Revenue Suggests Brighter Future. by Ashlee Vance. by Ashlee 6. Bloomberg Businessweek Technology. 2013. 10. Model S Efficiency and Range.html 2. References cited and Related articles Page | 28 . http://news. Bloomberg Businessweek. Tesla team mulls plan to boost image after New York Times review. by Elon Musk and JB Straubel. Lessons Learned from the Tesla-New York Times Dustup. 3. MIT Technology Review. by Matt Peckham. February 26.csmonitor. February 20.§ 8. MIT Technology Review. Feb 26. by John Gartner. Musk-New York Times Debate Highlights Electric Cars’ Shortcomings. http://www.forbes. Tesla Executive Blogs. Yahoo News. 2013 http://www. http://www. by Kevin Bullis. by Alan Ohnsman. Tesla’s Musk Predicts 25% Model S Output Gain After Snag. 2013. Musk Wants to Punch Himself in the Face. By Nichola Groom. As Tesla Eyes Profit. Feb 20. 2013. Tesla Motors CEO says NYT rift cost company millions. 2013. Feb 26.Tesla vs New York Times: Cars are now 9. http://www. Forbes. by Kevin Bullis. by Kurt Ernst. Feb 14.technologyreview. May 9. Feb 26. http://techland.

Magnesium Forum. Form 10-K for fiscal year ending Dec Economy and Vehicle Weight Reduction.htm and also http://www. http://editorial.cfm?FilingID=1193125-12-81990 Annual data for the years 2007 to iew_default=true The following links provide the shareholder letters with the financial 17. Supercars introduced automotive technology such as brake-by-wire. Tesla Motors 14. 2005 http://www. 16. filed on January 41dex991.teslamotors. 2010 http://www. http://finance. June 13. Z-rated tires and Laxmanan. see Condensed Consolidated Statement of Operations Page | 29 .Fourth Quarter and full year 2012 Shareholder Letter.The United States Securities and Exchange Commission. by V. Finished in ultra-lightweight metals and composites. See also Form 8-K filed Feb 20. Registration Statement. filed Feb 27.shareholder. Magnesium Forum.magnesium. 2011.Annual Financial Data for Tesla Inc.An overview of modern supercars. race-car braking and snug cockpits. 13. m#toc51863_11 Also provides also a good introduction to the all-electric vehicle technology commercialized by the company. 12. MSN Autos.. 2013 http://www.Magnesium and Hybrid Vehicles.msn. Form S-1. magnificent engines.magnesium.marketwatch. by V. electronic skid control. June 18. Tesla Motors Inc. Supercars offer cutting-edge technology. http://files. Tesla Motors. head-turning styling. variable cam timing.pdf Profits (Loss) –Revenues Financial data for 2012.sec. they're gift-wrapped in audacious.The United States Securities and Exchange Commission. Laxmanan. 2005.

Google: A Lovable One-trick Pony. helps us understand the financial data for more complex financial systems) 1.pdf Third Quarter 2011 Shareholder Letter 24.shareholder.shareholder.pdf Second Quarter 2012 Shareholder Letter 21.http://files. Money in Economics is Just like Energy in Physics: Extending Planck’s Law Beyond Fourth Quarter and Full Year 2012 Shareholder Letter 19.shareholder.pdf Second Quarter 2011 Shareholder Letter Related articles dealing with the analysis of the financial data for several companies based on the methodology described here for Tesla Motors (Yes.http://files. July 1.pdf Fourth Quarter and Full Year 2011 Shareholder Letter 23. 2012. http://www. 2.http://files. http://www. as conceived here.pdf First Quarter 2012 Shareholder Letter 22.scribd.shareholder. 2013.scribd.pdf Third Quarter 2012 Shareholder Letter 20. the Extension of Planck’s law. Published Jan Page | 30 .http://files.shareholder. and its generalization.

http://www.3.scribd. 2012.scribd.The New GM: A Brief Analysis of the Profits-Revenues§/A-Second-Look-at-MicrosoftAfter-the-Historic-Quarterly-Loss 10. Published July 7. http://www.scribd. Published July 6. . Quick Look at recent profits-revenues trends. http://www. August 14.scribd. http://www. Published August | 31 .scribd. Published Oct 1. 2012. 13. http://www.scribd. 2012.scribd.Yahoo! 9. June 4. A Fresh Look at Microsoft after its Historic Quarterly Loss. 2012. http://www. 4. 11. Three Types of Companies: From Quantum Physics to Economics. The Future of Southwest 2012. 2012. 2012. May 24.scribd.GM Before the Bankruptcy: Maximum point on the profits-revenues graph. http://www. http://www.Yahoo! Inc. Published July 25. 12. A Second Look at Microsoft after its Quarterly loss. Some Examples of Corporate Financial Behavior. Kia Motor Company: A Disappearing Brand http://www. Published Oct 5. The Air Tran Story: The Merger and the Maximum Point on the ProfitsRevenues Graph.scribd. Maximum Point on the Profits-Revenues Graph. 2012. http://www. August 14.

2012.Profits-Revenues-Data-through-1Q2011. The Efficiency of the Government Compared to the Thermal Efficiency of a Heat Engine. Page | 32 .com. http://www. 2012. 2011 and again on August Profits-Revenues Analysis: My Facebook Posts. 2012.Why Can’t GM be more like Microsoft? The New GM Just May be. 2012. 15. Jan http://www.scribd. http://www. Published Sep 13.scribd. Published Sep 15. http://www.Planck’s Blackbody Radiation Law Re-derived for the general case. 2012. 24.scribd.What is Entropy? June 3. Discussion of the new GM data from 1Q2010 to 20. Sep 18. 18.scribd.scribd.Amazon. Google financial data for early years may be found in Table 2.scribd. 16. 2012. 14. http://www. Published Sep 13. 21. Analysis of the Profits-Revenues Data. Published May 9.2013. 2012. May 21. 2012 . http://www.Amazon. Power law behavior with n < 1. May 29. 22. Published Sep 24.The Future of Facebook – 17.scribd.The Amazing US Government Surplus (Deficits)-Receipts Relation during the Clinton 19.The Clinton Budget Surpluses.scribd. http://www.Mount Profit Revealed by Ford Motor Company.scribd. 23. May Published August 22.A Brief Review of the Historical US Government Receipts-Surplus (Deficit) Relation. 2012. http://www.

like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e. he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). freezing of all commercial metals and alloys. might actually Page | 33 .e.) degrees in Materials Engineering from the Massachusetts Institute of Technology. He then spent his entire professional career at leading US research institutions (MIT. While at NASA and CWRU. each with the fixed quantum of energy conceived by Planck). and. referred to here as the generalized power-exponential law. he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree. His expertise includes developing simple mathematical models to explain the behavior of complex systems. Case Western Reserve University (CWRU). D. USA. Sc. NASA.About the author V. This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments.). More recently. E.g. He holds four patents in materials processing. followed by a Master’s (S. Bangalore. Allied Chemical Corporate R & D. D.. has co-authored two books and published several scientific papers in leading peer-reviewed international journals.. Einstein applied Planck’s ideas to describe the photoelectric effect (by treating light as being composed of particles called photons. MI). The mathematical law deduced by Planck. MA. energy in physics is like money in economics.) in Mechanical Engineering from the University of Poona and his Master’s degree (M. This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money. i. or snowflake. The author obtained his Bachelor’s degree (B. and General Motors Research and Development Center in Warren. also in Mechanical Engineering. freezing of water. yes. Cambridge. now part of Honeywell. M. production of snowflakes!). E. Laxmanan. from the Indian Institute of Science.) and Doctoral (Sc.

business. During my professional career. Cover page of AirTran 2000 Annual Report Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and photograph it. economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. Robert Schrieffer (1972 Physics Nobel Prize). It appears that financial and economic systems can be modeled using a similar approach. Page | 34 . I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Einstein’s photoelectric law is a simple linear law and was deduced from Planck’s non-linear law for describing blackbody radiation. 1986) and second at GM Research Labs to Prof.have many applications far beyond blackbody radiation studies where it was first conceived. Finance. appointed by GM corporate management. who was the Chairman of the Schrieffer Committee appointed to review NASA’s space flight experiments (following the loss of the space shuttle Challenger on January 28. Robert Solow (1987 Nobel Prize in economics). who was Chairman of Corporate Research Review Committee.

to Boston. REUTERS/Phil McCarten LOS ANGELES (Reuters) .Two relevant articles on Tesla reproduced Tesla team mulls plan to boost image after New York Times review By Nichola Groom | Reuters – 12 hrs ago http://news.Tesla Motors Inc's top brass. this week are considering a strategy to recoup market value and boost demand after a critical review of the automaker's Model S sedan in New York Times this month. speaks at the California Institute of Technology commencement ceremony in Pasadena. co-founder of SpaceX and Tesla Motors. which said the sedan ran out of battery power sooner than promised during a chilly winter test drive from Washington D.html View Photo Reuters/Reuters . 2012.Elon Musk. Musk says that Tesla has lost about $100 million in sales and canceled orders due to the Times including Chief Executive Elon Musk. California June Page | 35 .

by reporter John Broder." Musk told Reuters in an email.000 before a federal tax credit. while the S&P 500 index has slid 1. Musk lambasted the Times' review of the Model S.S. starts at nearly $60." he wrote. with stickers ranging to more than $105.4 percent. Its success is crucial for Tesla. Musk said. calling the test a "fake" on Twitter and producing data logs from that vehicle to disprove the article. "The Tesla team and I are brainstorming this week how to correct the misperception that they have created in the market about how well our car performs in cold weather. "That too. but noted that vehicle data logs reproduced by Musk on Tesla's website were "sometimes quite misleading.000 fewer cars than expected. assuming a $100."We have seen a few hundred cancellations that are due to the NYT piece and slightly lowered demand in the U. Broder in a Times story dated February 12 denied that he had faked anything." Sullivan concluded that "there is still plenty to argue about and few conclusions that are unassailable. will take money and time. Tesla would have to sell 1.000 price per vehicle. Since the Times' February 8 story. Between $100 million and $200 million of Tesla's drop in market value was due to the Times article. which is looking to turn an adjusted profit in the first quarter . which went into production last June.the company's first since going public in 2010. Tesla shares have fallen 13 percent. Northeast region. after the two-passenger Roadster sports car. The Model S. Times Public Editor Margaret Sullivan said Broder took "casual and imprecise notes" of his test drive and did not exercise good judgment. To lose $100 million in car sales." The Model S is the company's second electric vehicle." (Additional reporting By Deepa Seetharaman in Detroit) Page | 36 .000.

the maker of electric cars headed by billionaire Elon Musk.html Tesla Motors Inc. The company’s shares fell the most in almost five months after it posted a quarterly loss that missed analyst estimates." (Source: Bloomberg) Production of the rechargeable sedan at Tesla’s Fremont.9 million even as sales of its battery-powered Model S sedans increased. after falling short of an initial target of 5. 20 (Bloomberg) -. Baird & Co. talks about his experience owning Tesla Motors Inc. California.'s fourth-quarter results and outlook. The maker of electric cars run by billionaire Elon Musk said its net loss widened to $89. plans to increase output by at least 25 percent this year after earnings were hurt by startup snags that drove up costs in 2012. Photographer: Patrick T. Musk said in a phone Page | 37 . plant will probably reach 500 a week in mid-2013 after climbing to 400 a week in December.000 lithium-ion-powered sedans this year. an analyst at Robert W.Ben He speaks with Emily Chang on Bloomberg Television's "Bloomberg West. Fallon/Bloomberg 2:54 Feb.Tesla’s Musk Predicts 25% Model S Output Gain After Snag By Alan Ohnsman . 20 (Bloomberg) -. 2013 4:14 PM ET http://www. Tesla said it expects to be profitable this quarter.'s Roadster and Model S sedan. chief executive officer of Mahalo.. talks about Tesla Motors Inc. Enlarge image The company named for inventor Nikola Tesla reiterated a goal of delivering 20.Jason Calacanis.. (TSLA)." (Source: Bloomberg) Feb.000 in 2012. Kallo speaks with Pimm Fox on Bloomberg Television's "Taking Stock.Feb Inc.

interview yesterday.000 cars. to help it turn profitable as early as this quarter. 25. he said. over and above what we’ve already delivered.8 percent to $35. Tesla is counting on demand for the car.000 in 2012.7 million in the quarter because of higher logistics costs and component prices. Musk said the share price drop in extended trading yesterday was due to a misconception about demand for the Model S.” Production at its Fremont factory may increase beyond 500 a week toward the end of the year if there’s demand. “I want to keep the company on a steady production pace and focus on efficiency. Operating expenses rose 29 percent to $114. blaming a jump in operating costs during the start of production. “It’s going to be one of the larger stores. with respect to the China market size. an analyst for BofA Merrill Lynch Global Research. John Lovallo. Tesla is also preparing to sell the car to drivers in China. “We need to level off and focus on running a real tight ship.000 of its lithium-ion battery-powered sedans this year. 41. we’d be sold out basically for the whole year. the company said. The company will hold off on increasing output until it smoothens out the high amounts of overtime and delays in parts shipments it faced in 2012.” he said. California-company reported a fourth-quarter loss that was larger than analysts anticipated yesterday after the markets closed. reiterated a goal of delivering 20. said George Blankenship. following the company’s results.” Shipments of Model S to Europe start in the third quarter this year.000. “If we were to close all of our stores today.” Blankenship said in an interview. The carmaker. with growth accelerating when the Model X crossover vehicle is added in 2014. Tesla’s chief executive officer and biggest shareholder. the biggest one-day drop since Sept. and to Japan and Hong Kong in the final months of 2013. the company said yesterday. The shares fell 8.16 at the close in New York. after falling short of an initial target of 5. Quarterly Loss The Palo Alto. “We’ve got reservations for roughly 15. he said. named after inventor Nikola Tesla. priced from about $60. today lowered his rating on Tesla to underperform from neutral. Beijing Outlet “We’re under construction on a store in Beijing that will open in the spring.” Page | 38 .” said Musk. vice president of sales.

in line with the average analyst estimate of $306. Analysts on average estimated a loss of 57 cents. cost problems they might have had during the launch are mostly behind them.” he said. and costs to have tires and other parts delivered via airfreight led expenses to jump. The company delivered a total of 2. Operating expenses rose because of “significant early. After that.400 in the fourth quarter. from $81. with employees in Fremont working about 70 hours a week in late 2012. Currently.5 million a year ago.1 million. Sales in the fourth quarter jumped more than seven-fold to $306. from a year earlier. has certified Model S range of being between 208 miles and 265 miles. “and we want to get to more like a 45-hour week. “Ideally.” said Alan Baum. The delivery goal this quarter is 4. use of additional temporary workers. “we’re certainly going to try to be profitable every quarter. according to data compiled by Bloomberg. principal of Baum & Associates consulting firm in West Bloomfield. Turning Profitable “Our focus in the first quarter is making sure we’re profitable as promised. plant employees are working about 50 hours a week. travels as far as 300 miles (483 kilometers) with a full charge.900 before a $7.S. with a base price of $59. based on battery size.” Tesla’s Model S. Excluding some items. tax credit.9 million. according to the company.” Musk said. “That’s with a little bit of X in the mix. Michigan. Tesla reported yesterday.” he said. “If Page | 39 . “Most of the nightmares happened in the fourth quarter. the loss was 65 cents a share. Tesla now expects to post a profit excluding certain items in the first quarter.stage cost inefficiencies.” The fourth-quarter net loss widened to $89.” Musk said. Those costs will drop “substantially” this quarter. Musk said.000 units in 2014 is a pretty reasonable target.With the addition of those markets and higher production.3 million. Tesla said.S.” including higher logistics costs and component prices. Overtime Expenses High amounts of overtime. including 2. The U. compared with 69 cents a share a year ago. the company said. deliveries may increase 50 percent in 2014 from this year.650 vehicles to customers last year. as sales of the sedan expand. Musk said.500. The company expects to be near break even on cash flow from operations in the current quarter. “I think 30.500 U. Analysts on average had projected an adjusted loss of 23 cents a share in the first quarter.

that’s the case. Tesla rose 14 percent this year before To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg. after gaining 19 percent last year. To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg. and it seems to be. supplying each with battery packs and Page | 40 . The stock outperformed the Standard & Poor’s 500 Index’s gains of 6 percent and 13 percent respectively in the periods. it allows them to have a more positive cash flow situation earlier than planned. (7203) as both customers and investors.” Tesla counts Daimler AG (DAI) and Toyota Motor Corp.

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