Why isn't Tesla broke?

The purpose of this video is to understand the interesting financial situation that Tesla finds itself in and to learn more about how a company's cash flow works in the process Tesla is burning money in 2017 its business has produced a net loss of more than 2,200 million dollars with revenue of about 12 billion dollars, that's a lot of money, that's more than an 18 percent margin of loss compared to Apple was operating its business on a 21 percent profit margin, but it didn't It doesn't matter Apple even compared to its peers it's still a ballpark result for Tesla this kind of behavior hasn't been a one time thing either it's how they've run their business for years how can there be a company that has been losing money for years the answer is cash the reason Tesla still exists is while Tesla is losing money they are never out of cash when they get it's a win you win money congratulations you can usually also fill your cash bucket when you have a loss you'll usually take from your cash bucket now Here's the problem: your cash may never reach zero ever.

The definition of bankruptcy is not making a loss. You are bankrupt when you have no cash. In fact, you can comfortably run your business at a loss for a while if you have enough cash in your pocket, but when you don't have cash, your business is dead, dead, dead, dead, so when we ask the question when is Tesla running out of money what we really mean is when Tesla is running out of cash there are three main pipelines connected to a company cash reserves each of these pipelines has the power to give or receive cash depending on the situation your business is in business the first is operations this is the cash your core business produces the cash you get from selling what you sell minus the cash you lose from paying whoever you have to pay if it's a mature business with a decent profit margin, so operations is the number one pipeline that fills your cash pile Tesla operations still lose cash and here's why every time they sell a car or r battery or a solar roof their customers pay them cash and sometimes they even get the cash before they sell anything and that cash is more than a cost Tesla to make these products if you bought a $100,000 Tesla in 2017 you will have a cost Tesla only has seventy eight thousand dollars to do but operations is more than just making your product it's running stores, charging stations, doing research and development those are the costs that turn Tesla's gross profit into net loss and, more importantly, they turn cash generation into cash loss in 2017.

Tesla had to take only about $60 million from its cash pile to run its operations, since these operations have produced a net loss of more than 2,200 million dollars in paper. headquarters team all these things cost cash is all the cash that on the books is not lost in costs but is transformed into other assets a little bit like this for Tesl to this pipe has been the cash eater because gigafactory investments in 2017 claimed over $4.4 billion in cash last pipe funding this pipe is all the cash you get from lenders or investors in the form of loans or investments when you take out a loan or raise an investment this pipe provides when you have to pay off your loan or dividends to your shareholders this pipeline takes for Tesla this pipeline has been the big giver in 2017 brought Tesla just over $4.4 billion in cash an amount of money that could ring a bell, the art of good financial management is to maintain these three conduits and balance them when you take too much cash too often your business is bankrupt when When you produce too much cash your business is inefficient or is perceived as running out of ideas for Apple these pipelines currently look something like this they have been producing too much cash for the last decade what shareholders would have loved to see is that Apple has a lot of new ideas about how to invest 200pl billion dollars in the future, but instead we have this Apple returning hundreds of billions of dollars to its shareholders in the form of dividends and share buybacks, so we have a company that produces more cash than they know what to do and another that has more ideas of what they are making money are you thinking what I'm thinking? yes unfortunately these two gentlemen don't think so, this is Tesla's lifeline, as long as lenders and investors are willing to pile Tesla's cash they will go ahead if they choose. to cut it, even though Tesla is really doomed, what would it take for them to stop blowing cash?

Pipeline lenders are simple people, they give you a specified amount of cash for a set amount of time to get it back with a specified amount of simple interest they mostly mean two numbers first, what is the probability that you will pay them back? and, second, what annual interest should I charge? the larger the first number, the smaller the second and vice versa. Tesla has raised $3.2 billion in debt in 2017 alone, most likely not the last time and that's okay because all Tesla needs to do to keep borrowing money is to keep this number steady and lenders will keep giving at affordable rates So how is this number determined by so-called CRAs or Credit Rating Agencies, these rating agencies present ratings of specific companies through a beautiful simple and transparent process that always works. a mathematical rating for a company that is so hyped because Tesla is losing money and Tesla already has a total debt of ten point four billion dollars for almost 90 percent of its revenue, that's high, albeit compared to its peers surprisingly good God for really has a debt problem as far as Tesla if they can continue to grow at their current rate and eventually turn losses into profits they'll be fine then I can finally start downgrading Throwing their pipes is for the same reason why that investors continue to invest.

The most common way for young companies and startups to fill their cash pile is by creating new shares in their company and then selling it to interested investors. This process is called the capital race and if you want to understand the exact mechanics of how it works I can only recommend this video of a younger me exactly zero Hestia has raised nearly another $4.6 billion in cash from investors through further raises. capital. Trading cash for newly printed shares is a great deal for Tesla because, first of all, since its share price is quite high, Tesla needs to print just a few shares for a large amount of cash. which means: not much cheating for existing shareholders and cash from three shares is free cash for Tesla since you never have to pay a stock and Tesla currently doesn't pay dividends either the reason investors are doing this deal is because, like the lenders, they believe in this, if things go well, the lenders will get their money back plus interest and the investors will reap the rewards of success, but if things go wrong, the investors will. lose everything why the lenders take the assets that are left that's the deal and it's a deal they're both willing to make as long as there's the Tesla sales story a few years ago Tesla didn't sell cars in 2017 they sold and shipped over 100,000 cars in 2018 will sell and ship as many cars as they can from their current 600,000+ pre-order stack and since Tesla is making a gross profit on every car they sell, selling more is exactly what they need to do to be profitable overall, the carrot is right there but to catch it they need to produce more products and for that purpose they are investing so unless some catastrophe happens like a Giga factory blowing up or Musk actually decides to leave the earth altogether. together and finally live on Mars Tesla's cash pipeline isn't running low anytime soon and even then packages may not be filled with outside cash as long as there's the promise that one day sales may take over and I could do it Tesla has proven their market and with the highest customer satisfaction in the industry they have proven their product division is great and so are their costs but nothing is more powerful than the right idea at the right time and Tesla has arrived At this sweet spot many say it's an iPhone time when people saw the future and there was no way to stop it and that's why Tesla won't run out of money