Why isn't Tesla broke?

The purpose of this video is to understand the interesting financial situation Tesla finds itself in and 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 over $2.2 billion on revenue of around $12 billion, that's a lot of money, it's more than an 18 percent loss margin in comparison. Apple was operating its business at a 21 percent profit margin, but no matter, Apple, even compared to its peers, is still a tough showing for Tesla. It hasn't been a one time thing either, it's the way they have run their business for years, how can a company exist that has been losing money for years?

The answer is cash. The reason Tesla still exists is that while Tesla is losing money, so are they. You will never run out of cash when you make profit, you make money, congratulations, usually you can also fill your cash deposit when you suffer a loss, normally you will take it from your cash deposit, now here is the trick, it is possible that your cash never reach zero. The definition of bankruptcy is having no losses. You are bankrupt when you run out of 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 run out of cash, your business is dead. dead, dead, dead, dead So when we ask when is Tesla running out of money, what we really mean is when is Tesla running out of cash, there are three main pipes connected to a company's cash reserves, each of these pipes has the power to give cash. or take cash depending on the situation your business is in.

The first is operations. This is the cash your core business produces. The cash you get by selling what you sell minus the cash you lose by paying who you have to pay if you are a mature person. Tesla's operations still lose cash and here's why every time they sell a car, a battery or a solar roof, their customers pay them in cash and sometimes they even get the cash before they sell anything and that cash is more than a cost to Tesla to manufacture these products. If you bought a $100,000 Tesla in 2017, it will have cost Tesla only seventy-eight thousand dollars, but operations are about more than just manufacturing their product.

They are stores that run charging stations that do research and development, those are the costs that turn Tesla's gross profits into net losses and even more importantly, they turn cash profit into cash losses in 2017, Tesla had It has to take only about $60 million from its cash reserve to operate. its operations given that these operations have produced a net loss of more than 2.2 billion dollars on paper 60 million dollars in cash in reality it is not that much so there are investments factories headquarters equipment all these things cost cash it is all the cash that in The books are not lost due to costs, but transformed into other assets a little like this for Tesla, this tube has been the cash guzzler because the gigafactory investments in 2017 claimed more than $4.4 billion in cash.

Latest pipe financing is all the cash that is obtained from lenders or investors in the form of loans or investments when you take a loan or make an investment, this pipe gives when you have to return your loan or dividends to your shareholders. this pipe is taken for Tesla. This pipeline has been the big donor in 2017, it gave Tesla a little more. $4.4 billion in cash an amount of money that might sound familiar to you the art of good financial management is to keep these three pipes balanced when you take in too much cash too often your business fails when you produce too much cash your business is inefficient or perceived to be Running out of ideas for Apple, these tubes currently look like this, they have been producing too much cash for the last decade, what shareholders would have loved to see is Apple coming up with lots of new ideas on how to invest over 200 billion. dollars in the future, but instead we have Apple returning hundreds of billions of dollars to its shareholders in the form of dividends and stock buybacks, so we have a company that produces more cash than they know what to do with and another who has more ideas than them.

They're making money. Are you thinking what I'm thinking? Yes, unfortunately, these two gentlemen do not think the same. This is Tesla's lifeline, as long as lenders and investors are willing to fill Tesla's cash, they will follow through if they decide to cut back. Although Tesla is truly doomed, what would it take to stop the cash flow? Pipeline lenders are simple people, they give you a specific amount of cash over a fixed period of time to get it back with a specific amount of simple interest. They mainly care about two numbers: First, what is the probability that you will pay them?

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. last time and that's okay because all Tesla needs to do to keep borrowing money is keep this number stable and lenders will continue to give at affordable rates, so how do the so-called CRAs or credit rating agencies determine this number? with specific company ratings through a beautiful, simple and transparent process that always works Tesla currently has a rating of B to reduce B 3 depending on the class of that, according to Moody's, is more or less a math rating for a company which is so hyped because a Tesla is losing money and Tesla already has total debt of ten point four billion dollars for almost 90 percent of its revenue, that's high, although compared to its peers it's surprisingly okay, God, because they really have a debt problem when it comes to Tesla, if they can continue to grow. at their current rate and eventually turn losses into profits, they will be fine, then I can finally start rebalancing their pipelines.

That same reason is why investors continue to invest. The most common way for young companies and startups to fill their cash pile is by creating new shares of their company and then selling them to interested investors, this process is called capital rush and if you want to understand the exact mechanics of how it works, I can only recommend this video of a younger me, exactly from scratch, Tesla went public in 2010 raising $226 million by selling new shares to stock market investors, that money didn't last them long. Hestia has raised nearly another $4.6 billion in cash from investors through more capital raises.

Exchanging cash for newly printed shares is a big deal for Tesla because, first of all, since its share price is quite high, Tesla needs to print only very few shares to get a large amount of cash, which means that There's not much cheating for existing shareholders and three shares in cash is free cash for Tesla since it never has to pay. a stock market and Tesla is currently not paying dividends either, the reason investors are doing this deal is because just 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 fruits of success, but if things go wrong the investors will lose everything why the lenders seize the remaining assets that is the deal and it is a deal that both are willing to make as long as the sales history of Tesla a few years ago Tesla did not sell cars in 2017, they sold and shipped They will sell 100,000 cars in 2018 and ship as many cars as they can from their stack of over 600,000 current pre-orders 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 there, but to catch it they need to deliver more products and for that purpose they are investing, unless a catastrophe like a Giga factory explosion occurs or, you know, Musk actually decides to abandon Earth completely and finally live off cash of Tesla on Mars.

The pipeline isn't drying up any time soon, and even then, the packets may not be filled with outside cash, as long as there's the promise that one day sales can take over and I might just make it. Tesla has proven its market and with the largest number of customers. Satisfaction in the industry has shown that their product division is great and so are the costs, but nothing is more powerful than the right idea at the right time and Tesla has achieved this sweet spot. Many say it's an iPhone moment where people saw the future and there.

There was no way to stop it and that's why Tesla won't run out of money