I"m not sure, but i think there was a lot of pent up demand for a high end electrical car, they're in the process of serving that demand globally, and then what? Do deliveries plateau or even drop? There's stories about it dropping already, at least for the models S and X.
Of the $2.4 billion raised, about half must go toward servicing existing debt, and with the money they already had in the bank (about $900m), they have about $2.1b liquid cash to see them through the next 10 months, assuming the same burn rate (losing $200m/month).
Tesla had ~$2.5B in the bank before the capital raise, and are going to be receiving a multi-hundred million to $1B payment from Fiat Chrysler (https://www.ft.com/content/7a3c8d9a-57bb-11e9-a3db-1fe89bedc...) to offset their emissions. They have plenty of money in the bank for the foreseeable future, but they won't if they don't cut their expenses or increase sales. To me, this just looks like a company exiting startup wild-west spending and maturing into a full-fledged company with hard-set processes for company expenses.
Someone else in this thread has stated that a) around half of the raised money needs to be used to service debt b) Tesla had $900 million in the bank before raising money. Doing the math based on the letter's $200 million/month loss rate that comes out to 10 months before Tesla is utterly out of money.
Tesla's cash balances are always higher and the end of the quarter, when they draw on the ABL while also selling a mass of cars that serve as collateral for the same ABL. Look at the interest they earn each quarter to get the average cash balance.
I enjoyed the first years of the Internet as well, but as fun and exciting the early web, IRC ad Usenet forums were, there was no Google Maps, no Wikipedia, no next-day shipping of almost everything, no Youtube... many things I could live without today as I did at the time, but overall I think they have a decent utility.
What the Internet has lost in terms of mystique and pioneering freedom, it has gained in terms of utility and convenience, IMHO.
The main reason I would like to go back to 1999 would be because I would be 20 years younger :)
> What the Internet has lost in terms of mystique and pioneering freedom, it has gained in terms of utility and convenience, IMHO.
Maybe I've got a bad case of the "back in my day", but I feel more and more that "mystique" is what makes life worth living.
Watching a lot of movies from the 60s-90s recently, it's striking how much more effort we needed to put into everyday life back then.
Want to meet a friend? Call their number, hope they're home and arrange a time. Want to watch a movie? Drive to the video store and hope they've got what you want. Out of food? You're driving to the nearest restaurant, no Uber Eats. Want to find out the median rainfall in Fiji? You're waiting for the library to open and digging through a stacks of musty old books.
Nowadays, everything's instantaneous - you want something, you get it. We've lowered the bar for almost everything.
If consumption and enjoyment no longer require any effort, doesn't that devalue the entire experience? What does that mean for life in general? Don't you think that humility comes from knowing the effort required to know or acquire things?
Hear hear. It's like the programming mindset has been applied to day to day life. Ruthless pursuit of efficiency and automation, maximum and continuous delegation to the system and machine - these things suffuse everything and are even elevated to the status of values. It makes sense with something as error-prone and cognitively challenging as code, especially considering how well suited machines are to handling it. But now these values have been transferred into the business of daily human living and taken to an extreme. How good an idea that is, and what the end results will be, those things aren't obvious to me.
> If consumption and enjoyment no longer require any effort, doesn't that devalue the entire experience? What does that mean for life in general? Don't you think that humility comes from knowing the effort required to know or acquire things?
This is an interesting perspective, surely. But the premise for reducing effort in some areas, as has always been the case with economic growth, is that we can focus that same limited effort on exploring new horizons, standing on the shoulders of giants, living in paradises of dreams past.
Look to the stars, for they will never limit your ambition.
>I enjoyed the first years of the Internet as well.
I think you mean that you enjoyed the first years of the Internet after it became known to the general public in 1993.
The first year of the Internet was 1969.
Added in anticipation of a nitpick: some writers like to reserve the word "Internet" to refer only to the period after the great switchover to Internet Protocol in 1986, but it was the same hosts hosting the same services (e.g., mailing lists, FTP sites, Netnews and Telnet) before and after the switchover.
I agree. Going back in time wouldnt be too bad. I miss the first days of twitter where i would have discussions with other engs on tech, or days where fewer but higher quality content was the norm.
We probably need a better filter. I stopped using fb years ago, same for twitter. No regrets
>> don’t understand why anyone has trouble leaving
I also find it puzzling. Then again, as with cults or other bottom feeding fads and the increasingly ubiquitous, various and sundry addictive mires and dark patterns, to avoid the trouble in leaving, it is best not to enroll in the first place.
Here is an 60-minute interview, in 1999. The journalist/expert made the same argument as in your graphic, that a software company is overvalued because its market cap is higher than traditional companies
the interviewer literally laughed at how Amazon is overvalued, because its stock price was worth 20% MORE than a real company like Sears. Your graphic uses the same logic as that interviewer did in 1999.
But I'll note that for every Amazon there's dozens or more Pets.com. So, yes, maybe Lyft is the next trillion dollar company -- or maybe it's, you know, a cab company.
Yes, either case is possible. Lyft could become Pets.com or Amazon.
You can argue that Lyft will become Pets.com, due to other reasons, such as growth potential etc. That would make sense.
BUT, the argument in your graphic, that a company is overvalued simply because its valuation is higher than traditional well-known brands, that ARGUMENT is flawed.
Lyft's valuation is totally independent of Ford's valuation. These are separate companies with separate paths. Amazon's valuation was not tied to Sears--the 60-minutes journalist made the mistake of connecting the 2 together. The argument behind your graphic is wrong.
If Lyft becomes the next Pets.com and goes bust, its stock would be worth $0. If that happened, it would be laughable to say that Lyft is under-valued, simply because Ford is valued in the billions.
Ford's valuation has nothing to do with how Lyft is valued. To say that Lyft is over/under valued because Ford has X valuation, like what your graphic is saying, makes no sense at all.
My rebuttal is to note the notion of "expected value". A company that has a 1/1000 chance of becoming a trillion dollar company and a 999/1000 chance of becoming a worthless company is worth 1 billion dollars.
And that's the most simplified model possible. If you have a 1/1000 chance of being worth a trillion dollars, you may also have a 10/1000 chance of being worth ten billion dollars, 100/1000 chance of being worth one billion dollars, and 200/1000 chance of being worth 100 million dollars. That adds $220 million of expected value. You can add another couple million if you account for the company still having liquefiable assets even in the case that it ends up folding like Pets.com (which ended up returning at least a few million dollars to their shareholders: https://www.sec.gov/Archives/edgar/data/1100683/000089161802...).
The particular traditional companies in the graphic are, if anything, the worst possible cases of this.
For example, the graphic includes both Delta and American Airlines as well as Jetblue. Airlines are effectively a zero-margin business for some interesting reasons (https://philip.greenspun.com/flying/unions-and-airlines). You might say, so are Uber and Lyft, but airlines have a static business model that hasn't changed for decades, can't fundamentally change because it's regulated within inches of its life even after "deregulation", and Delta and American have no real room for growth.
Ford isn't really even comparable. It's a car manufacturer. At least airlines transport people from point A to point B. Likewise for Embraer, which manufactures jets.
Royal Caribbean is a cruise line, which puts it more in the "leisure" sector than the "transportation" sector. (Can you expense Uber or Lyft for work? Yes. Can you expense airline tickets? Yes. Can you expense a Royal Caribbean cruise? Not likely.)
And that leaves a shipping company and a car rental company, which are at least in the same ballpark as airlines in that they're basically logistics companies (with an optional customer service component), but Uber and Lyft are different from these in that Uber and Lyft don't have to manage the physical capital.
Do I still think Uber and Lyft are likely overvalued? Honestly, yes, and that's why I don't buy them. Am I shocked that Lyft is approximately as valuable as Delta Airlines? Not at all.
Ya but in the end they always delivered. The 35k model 3, scaling up manufacturing to over 5k cars a week, not going bankrupt. They missed the deadlines but eventually they delivered as promised.
Why is missing their self-imposed deadlines such a big deal to you, but the fact that they delivered later on, something that you gloss over entirely? Those were huge goals that they delivered on, that most critics said was near-impossible to do.
It wasn't that long ago that critics were calling Elon a fraud for offering an electric car for 35k, that it can never be done because the cost to build one cannot be under 35k, and that Elon was a car salesman scamming people for pre-order money. And now it's done, the 35k model 3 is delivered, and people are focused on what, missed deadlines they self-imposed in the past? Is that really the most important issue here?
It wasn't that long ago that critics were calling Elon a fraud for offering an electric car for 35k, that it can never be done because the cost to build one cannot be under 35k, and that Elon was a car salesman scamming people for pre-order money.
No one said that Tesla could "never" offer a Model 3 for $35k. There was a lot of chatter about them not being able to do so on anywhere close to the timeline Tesla claimed they would, and some of that came from Tesla itself. As recently as 2018 Elon Musk said that offering the Model 3 for $35k would bankrupt the company due to the non-existent profit margins due to the unit economics.
And while we're on that subject: Tesla also announced that in order to build the Model 3 for $35k they would need to fire the entire sales team and switch to online orders only, and eliminate referrals. So it seems that even Tesla still doesn't think that they can offer a $35k Model 3 profitably based on their existing unit economics.
And now it's done, the 35k model 3 is delivered, and people are focused on what, missed deadlines they self-imposed in the past? Is that really the most important issue here?
For investors, a company that perpetually misses deadlines is a serious, real-world problem indicative of poor planning, leadership, and management. It's one thing to miss the occasional deadline by a few days or weeks. It's another thing to miss every deadline announced, by months each time. At some point, the "self-imposed" publicly announced deadlines are just fraudulent statements intended to induce investors to buy shares of the company. CEOs have been criminally prosecuted for that in the past...another former SV darling is being prosecuted for that right now...
Even now you are saying above, that it's extremely hard to build and sell Model 3 for 35k. Even now you are listing many reasons why Tesla can't do it based on unit economics.
But when Tesla actually does it? What if they actually deliver? Then suddenly the 35k Model 3 is not important to you anymore.
Suddenly it's all-important to focus on "missed deadlines" of a few months.
It seems to me, critics only focus on the 35k Model 3, when it can be used as a talking point to attack Tesla. When Tesla actually delivers on the 35k Model 3, critics then focus on "missed deadlines". Critics never really cared about the 35k Model 3, they only care about attacking Tesla.
While we are on the subject, what proof do you have that a missed deadline is "intended to induce investors"? How do you know it's not just that technical difficulties?
While we are on the subject, which former SV darling are you talking about, that you are comparing Tesla to? I want to know why you think a company like Tesla, who delivered on successful projects many times and sold many cars, is somehow being compared to the company you mentioned.
ya but neither of those 2 things (Toyota's Prius 2, and California's green car incentives) were successful in making car manufacturers wake up and go electric. It was only when Tesla started making money that every car manufacturer is being serious about competing in this space, and even then they are behind.
Curious to see why you think credit goes to Toyota, instead of Tesla?
Car companies started going electric because California and Federal fuel standards require increasing fuel efficiency on a fleet basis, and the only way to achieve those goals is now through zero-emissions vehicles like hydrogen, fuel cell, or EV. Hydrogen tech and fuel cells are still too inefficient and expensive for consumer vehicles (especially given the rare-earth materials required for high-efficiency fuel cells). Batteries happened to get much cheaper due to their increasing use in non-vehicle electronics like cell phones, which made EVs the best choice from a tech and cost perspective.
In other words, Tesla didn't actually make car manufacturers "wake up and go electric." They were going to go electric anyway because it was the obvious tech choice.
Tesla's accomplishment was to show that people were finally ready to buy green cars that looked like normal cars. (The first hybrids and EVs from Toyota and Nissan looked like normal cars, and sold horribly. Toyota and Nissan introduced the butt-ugly designs because green car buyers back in the day wanted distinctive cars to show off their greenliness.)
t neither of those 2 things (Toyota's Prius 2, and California's green car incentives) were successful in making car manufacturers wake up and go electric.
California's green car incentives and fuel efficiency requirements are what drove most car companies to invest in green car tech in the first place.
I disagree. California's green car incentive drove most companies to invest in green car tech as a toy, but it was always a hobby. A side project for R&D.
Car manufacturers never took green cars seriously and never felt the need to transition large amounts of their cars from gas to green. It was only when Tesla started making a splash that car companies took electric cars seriously.
Agree Nissan Leaf is a good car. It's a shame Nissan didn't sell more varieties of electric cars after the success of the Leaf. Would have been nice if they expanded on the success of the Leaf
I wish I knew what was going on over there. First gen had some rough edges, but eight years later we're still glad we bought ours. Yet they went so long with the original design, I figured they just gave up on electric and kept the Leaf as a compliance car. Then they came out with the new one. Okay, so haven't given up. Then where's something other than a sedan? Like a Kia Sol or summat, because our next electric is going to be able to carry dogs.
So maybe Nissan got a head start, but of all the electric vehicle manufacturers Tesla is the only one moving things forward at the moment with saleable vehicles, that much I'll give them credit for.
ya but if you raise an extra 100M, that most likely is an up-round, which means the value of employee's equity has increased
example: as an employee you own 10% of the company. The 10% is worth $10. After company raises a 100M round and dilution has occurred, you own 1% of the company, but that 1% is now worth $50
who is being treated unfairly? I don't quite understand
The problem arises when the company exits at below the ridiculous valuation, inflated by the up rounds.
Investors in the unicorn know it's a ridiculous market cap, but will lock in preferential payout on the exit. This means that while the employee private equity may increase in value, the employees get pennies on the dollar during the exit because the majority of the payout goes to the investors who inflated the price to begin with.
It gets worse when employees pay taxes on the equity at the inflated valuation, but there are ways claw that back later.
An exit is an exit. Failed companies getting acquired is still an exit, whether it happened early without funding or later with a ridiculous valuation.
The difference is the expected value of income that the employees are given in equity, which is especially nefarious.
Investors in the unicorn know it's a ridiculous market cap, but will lock in preferential payout on the exit.
This is not a thing that happens in the vast majority of circumstances. Preferences are for downside protection not a way for investors to actually make money. No one invests with the goal of making use of them.
#2 is not at all clear. Investors lost (collectively) over 125 million dollars. The only employess that lost money are those that exercised stock options and had to pay taxes on unrealized gains. It's highly doubtful that this totaled nearly as much as the investors lost.
The value of the company has increased either way, the fact a round happens doesn't change the underlying value but merely signals it. Since employees generally can't sell their shares either way that signaling doesn't impact them. So, in your example, before the round you actually owned $500 and after the round you own $50.
No. I see what you mean, but in practice that's not what happens.
Numeric value is determined at time of sale. Without a sale, the object has no "value". It might be useful to you in some way, but it's value is 0 unless you can sell it. There is no such thing as "underlying value"
example: I have a normal orange that I bought for $5 at the supermarket. The orange's underlying value is $5. If I sell it to my friend for $10, the value of the orange is now $10. If no one is willing to buy it, its value is $0.
The same thing happens when you raise a new round. When you raise a new round, you've made a "sale": someone paid money for it. That exchange of money/shares is what determines value.
While I agree that selling something at the highest price you can is the best way to appraise value, I disagree that an up round necessarily increases the equity value of employees (unless the employees can sell off their equity during the round).
To use your orange metaphor, while it is true that if no one else wants the orange the value of the orange is $0, I don't have to sell it to have a good idea of what the price of an orange is. For example, if there are people offering to buy my orange for $8 and I know that a typical bid-ask spread for fruits is %50 of the bid and most transactions occur at midpoint I can be relatively certain that the orange is worth $10 despite no transaction occurring and there being no market for oranges (if there is a generic orange market you have access to then the entire point becomes moot since you can just take the market price).
yes, but the key part of your statement is "if there are people offering to buy". Everything else about spread/bid/ask/etc is just mathematic sugar.
"People offering to buy" is key.
It's very easy for a founder to tell employees "hey I met with a VC yesterday, and they were interested in investing at $x a share!". It's easy to say that, but making it actually happen is the real deal. When someone sign on the dotted line and hand over real $. It's a much more accurate test of value.
> So, in your example, before the round you actually owned $500 and after the round you own $50.
That's not how the math works. In the prior round people didn't know the value of the company. Maybe it was worth $100M, maybe it was worth zero. The expected value (weighted average probability of all scenarios) of your stake in the company was worth $10 per the parent
