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Tesla CEO Elon Musk on high cost of building Model S: “I wanted to punch myself in the face”

tesla model s

Tesla Motors has been spending way too much money building each Model S. That reality, and how the company is remedying the situation, was one of the main talking points during a conference call that followed the release of the automaker’s fourth-quarter letter to investors and financial results. The discussion offered a great look inside a company that is moving from its start-up stage to becoming a full-blown, car-building, money-making operation.

Tesla could bump up production to 500 Model S EVs a week, but will focus on reducing costs first.

To achieve the first-quarter profitability target that CEO Elon Musk says he expects to hit, Tesla is focusing on improving production efficiency and increasing gross margin, rather than just increasing the rate at which they turn out cars. Tesla could build as many as 500 Model S vehicles per week – instead of the current 400 – but wants to reduce the cost per car before it turns up the production volume. Musk reiterated the precise goal during the call, saying, “I’m highly confident that we’ll be above 25 percent gross margin, without considering zero-emission credits, by the end of this year”

“The amount of overtime required to achieve 400 cars per week was pretty extreme.”

There are several ways to pursue that target, one of which is reducing the man-hours required to pump out each Model S. In December, at the height of its efforts to achieve a 20,000-vehicle annualized production rate, workers were averaging something like 68 hours a week, Musk said (and also participated in). Obviously, that’s expensive in terms of paying additional overtime wages, and can lead to employee burn out if sustained. “The amount of overtime required to achieve 400 cars per week was pretty extreme. That has improved pretty dramatically,” Musk said. That number is now down to about 50 hours a week and should drop to the mid-40′s sometime next month, Musk said. At the same time, the company is working to greatly reduce the number of temporary workers it employs and increasing, somewhat, the ranks of its full-time team.

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Another area where Tesla is achieving large cost savings is in its supply chain. As a startup, suppliers didn’t offer Tesla the same sort of deals they might to an established OEM. They used industry estimates of 1,500 units per year – rather than Tesla’s figure of 20,000 – to set pricing. That’s now changing and, as the company meets certain volume targets, the prices (particularly for the all-important battery cells it’s sourcing from Panasonic) are falling to more reasonable levels.

Even the supply-chain logistics are improving as its industrial relationships mature. Musk told one anecdote that encapsulated many of the company’s teething experiences. Apparently, it was taking longer than the 30-day financial terms in place to receive 21-inch tires from a tire supplier, so that the company was overdue payment on goods that hadn’t yet been delivered. The supplier then put a hold on further shipments, creating a hiccup in the production process and forcing Tesla to ship some cars with 19-inch wheels with a promise to replace them at a later date.

“I wanted to punch myself in the face for that one.”

To get things moving, Tesla ended up flying the tires from the Czech Republic to California – not an inexpensive proposition. Said Musk, “I wanted to punch myself in the face for that one.” It was, indeed, a memorable line that helped sum up the frustrations of moving through an awkward developmental stage.

Hopefully, these lessons learned will help the California company exceed performance expectations, just like the cars it produces. Market analysts on the call didn’t see it that way, and punched the TSLA stock price in the face – knocking it back 8.77 percent on the day following the release.

By Domenick Yoney

Tesla seeks another $225 million through follow-on stock offering

Tesla Model S

Tesla Motors is looking for history to repeat itself.

The luxury electric-vehicle maker, which raised $226 million in its June 2010 initial public offering, is looking to raise another $225 million in equity through an additional stock offering.

Last Friday, Tesla said it priced 6.93 million shares at $28.25 each and is offering another 30-day option to its underwriter for an additional 1.04 million shares. Tesla co-founder Elon Musk will also buy as many as 35,398 shares in the company, whose stock was trading at about $29 a share as of Monday morning.

Tesla, which also has received a $465 million credit line from the U.S. Department of Energy, recently said it’s being asked to speed up repayment of that loan starting later this year.

Last week, the company cut its 2012 revenue forecast by about $160 million to as much as $440 million because of production delays for its Model S sedan. The company has not yet made a profit. Check out Tesla’s press release on the stock offering below.

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By Danny King

Wall Street loves Tesla’s Elon Musk, values the brand higher than Fiat

Tesla side marker

Tesla’s value on the stock market far exceeds the number of vehicles it contributes to the automotive market. According to a report from Automotive News, Tesla is currently valued at $8.8 billion. Almost unbelievably, though we’ve never claimed to have a firm grasp on the inner workings of the stock market, that’s a full billion dollars more valuable than Fiat and three times more valuable than PSA Peugeot Citroën, says the report.

How unfathomable is that statistic? Consider the fact that Tesla, a ten-year-old company, just managed to turn its very first profit last quarter and has produced fewer than 10,000 vehicles in its lifetime. How does that compare to an automotive giant like Fiat? Well… it doesn’t – The brand sold 44,772 Fiat 500s in the United States alone in 2012, and it owns or controls the Chrysler portfolio of brands along with Ferrari and Maserati… not to mention the hundreds of thousands of cars Fiat Group sells yearly in the rest of the world.

Granted, the number of vehicles sold by a brand is just a small portion of its value, but you may still wonder, Why is such a seemingly small player in the global automotive marketplace such a big deal on Wall Street? According to AN, it has a lot to do with its controversial and headline-grabbing CEO, Elon Musk, and the way he disseminates company information to his investors. How so? We suggest you take a good look at the article here for the whole story.

By Jeremy Korzeniewski

Tesla stock reaches record high, brushes $53

Tesla Motors logo on Model S

Tesla Motors shares hit a record high Tuesday morning, reaching almost $53 a share in NASDAQ trading before leveling off slightly to about $51 as of late this afternoon Eastern time. Tesla touched $52.92 shortly after the markets opened on Tuesday. Shares for the company, which went public at $17 a share in June 2010, have jumped more than 50 percent during the past year.

The California-based maker of the all-electric Model S said earlier this month that Q1 was its first ever quarter in the black, noting that it beat sales targets. That news followed up Tesla chief Elon Musk’s proclamation that it would pay back its US Department Energy loan in roughly half of the ten-year timeframe previously set. Musk has been vocal and optimistic about his company’s future, which lead to an excited Tweet about an upcoming announcement, a Tweet that might get him in trouble with the SEC.

Musk isn’t the only one who sees good things in Tesla’s future. Last week, Time Magazine named Musk one of the 100 most influential people in the world. On Monday, Seeking Alpha went as far as to say Tesla shares could hit $144 in the “near mid term,” especially as short sellers who expected the stock to fall are forced to cover their losses. Motley Fool took a more measured approach, saying that factors such as Tesla’s cash position, its ability to sell cars to those other than early adopters and the prospect of increased EV competition from larger automakers will determine whether the stock surge is justified.

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By Danny King

Tesla raises $1 billion as stock climbs; predictions have it at $200 (or $37) *UPDATE

tesla model s logo

Despite the company’s recent string of successes, there’s still a lot of skepticism about Tesla out there. Some of the negativity focuses on the lack of recharging infrastructure, some on the company’s expensive cars and how it’ll be difficult to make a mass-market car. And when it comes to the company’s stock price – TSLA is currently at around $90 – the predictions are all over the map. Some say it’s still worth shorting (that is, predicting it will drop). Some say it could reach $200 before too long; others warn it will fall to somewhere in the $20-$40 range.

“There is a fundamental view of a scenario where Tesla becomes the next GM or Ford.”

Still, the big news – that is, something that’s actually happened, not just bloviations about the future – is that Tesla raised more than a billion dollars in cash last week by increasing the amount of debt and equity it was offering. Instead of selling a total 2.7 million common shares, CEO Elon Musk put up 3.39 million, and bought $100 million himself. This showed confidence, which was admittedly already there, and Tesla raised far more than the $830 million originally expected. The money will be used, in part, to pay back the US government for the $465-million Department of Energy loan.

The good news prompted an unnamed banker to tell IFR what it looks like on the other side of the skepticism spectrum: “[CEO Elon] Musk has a vision of creating a $50 billion-plus company in five years,” adding, “There is a fundamental view of a scenario where Tesla becomes the next GM or Ford.”

*UPDATE: Musk just Tweeted that Tesla will likely pay back the DOE loan Wednesday.

Related Gallery2012 Tesla Model S: First Drive

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By Sebastian Blanco

Tesla increases lease calculator costs; Supercharging, ‘mystery’ announcement coming soon

tesla model s driving

Even Tesla Motors hasn’t totally figured out the details of the just-announced Model S “lease” program. Yesterday, when the financial product was first revealed, the small print on the company’s online calculator described a 66-month loan and a tiered monthly payment structure, depending on which model you chose: $1,199 a month for the 85-kWh Model S, $1,421 for the 85-kWh Performance model and $1,051 for the 60-kWh version. Today, all three of these prices have been increased slightly, to $1,252 (85-kWh), $1,483 (Performance) and $1,097 (60-kWh). Tesla spokesperson Shanna Hendriks told AutoblogGreen, “We made a small change to the site overnight – changing the 66-month term to a 63-month term. We were incorrect with putting 66 months initially. I believe this is the reason for the discrepancy.”

Today, all three of these prices have been increased slightly.

So, yeah, there’s some confusion out there. Since the announcement, the Internet has been abuzz with critics taking Tesla to task for CEO Elon Musk’s insistence that the “true cost of ownership” can be driven below $500 a month. It can, using Telsa’s calculator, if you live in a world where you’re always getting paid $100/hour and therefore your 15 minute gas station stop is valued at $25. And you fill up four times a month. With premium gas. In a car that gets terrible fuel economy. We found that making these assumptions were the best way to get our “effective monthly cost” down to $500 or less. Oh, and claiming your Model S for business purposes helped tremendously. You can see why Tesla’s stock went down 7.3 percent since the “lease” news came out.

Nonetheless, Musk is confident that his numbers are right – he told Automotive News that “Even if you don’t count the time savings, you can own the car for net cash out of pocket for $500 a month, no marketing gimmicks. Some people wanted to call bull—t on us because we had certain default [calculations] set up on the site, and we have fixed them” and also “I just want to make sure people really do appreciate that $500 is a real number and not some sort of marketing fiction” – and is promising more announcements throughout all of April. Next week, we’ll learn something about servicing and the week after that will be one about Supercharging and after that, Musk said, “there will be a mystery announcement. Then we’ll shut up and hopefully people won’t be sick of us.” It all depends on what those announcements will be.

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By Sebastian Blanco