After a life-and-death struggle with Edison, he declined the Nobel Prize 11 times, gave up becoming the richest man in the world, never married for a scientific career, slept only two hours a day, had 700 inventions, and was called "God". In the end, he died of poverty.

Tesla, Inc. (TESLA) was originally remembered as the mysterious and charming father of alternating current.

Now this name continues the legacy of our predecessors in the field of new energy vehicles and continues to shine. But Wall Street investment managers thought he was at great risk of bankruptcy, the media questioned the quality of his products, and his peers angrily scolded him for "burning money" and the end was coming. Even so, Tesla, Inc. 's share price rebounded quickly after a fall in higher-than-expected losses in the first quarter of this year and is now just one step away from an all-time high. What is the logic behind this anti-value investment phenomenon?

Tesla, Inc. viewed from the Cash flow

People who are familiar with Tesla, Inc. have witnessed the process that it has been constantly questioned. The first is the poor financial situation. In 2017, Tesla, Inc. lost US $2.2 billion for the whole year, and his annual income was US $11.8 billion, accounting for 18% of the loss. Is that a big loss? Let's compare the proportion of his loss with some well-known companies.

It is obvious that there is a big gap between Tesla, Inc. and Apple Inc, the "first market capitalization company", with a 21% profit margin, even with traditional car companies such as GM and Ford.

In the picture above, we can see that Tesla, Inc. has actually lost money for many years, gray is revenue, red is loss.

How can a company that has been losing money all the year round survive so far? I'm sorry, it's fine under the American Dream. The reason is that Tesla, Inc. is not short of cash and has a continuous supply of "water".

Let's start with a story: if you have a cash pocket, suppose the company makes a profit, you will put some money in the cash pocket. If you lose money, you need to take some money out of your cash pocket. It should be noted that the money in this pocket can never be returned to zero, or the company will go bankrupt.To draw a key point, the definition of bankruptcy is that the company is out of cash and cannot continue to operate, not at a loss. This is the cash flow theory and the cornerstone of all modern business management. In fact, Tesla, Inc. is not the only company that is losing money year after year but doing brisk business, but there are also many companies, including the giant Amazon.Com Inc.

So the key to discussing Tesla, Inc. 's bankruptcy is: when will Tesla, Inc. 's cash pocket dry up? is it 2018 or 2019?

Cash is king

In fact, there are three major channels for the source and expenditure of corporate cash.

The first major pipeline is operation.

The operation pipeline corresponds to the income and expenditure of the company's main business, and the products are sold to get cash. For example, for an excellent company like Apple Inc, its products are hot, and the operating pipeline has become the main source of more than $250 billion in cash on its books.

However, Tesla, Inc. lost money in the operation, so this piece of cash flow to Tesla, Inc. was drawn blood.

Whenever Tesla, Inc. sells products, such as electric cars, charging walls or solar roofs, he receives cash from consumers. Tesla, Inc. 's users not only pay cash, but sometimes even pay cash in advance before receiving the goods. These businesses are profitable. For example, the average price of a modelS/X is about $92000, a profit margin of about 25%, and a profit of $23000 for each car.

But operating this area includes not only selling products, but also operating specialty stores, building and operating charging stations, and research and development. And it is this part of the expenditure that is greater than the profit of selling products, so in operation, Tesla, Inc. withdrew $60 million in 2017. Of course, this is only a small part of the loss of $2.2 billion for the whole year.

So come to the second largest pipeline: investment.

Factories, headquarters and equipment, which all cost money to build, are part of the investment. As shown in the chart below, these cash expenditures do not count as losses on paper because they have become assets. Investment can bring benefits, but if people like Tesla, Inc. want to achieve automated and intelligent production, the investment expenditure is huge.

Investment has always been the largest part of Tesla, Inc. 's cash expenditure, such as building the Giarfactory (Tesla, Inc. gigabit factory) in the picture. In 2017, the investment pipeline burned Tesla, Inc. 's $4.4 billion in cash!

The last channel is financing.

This pipeline refers to all the cash that can be obtained from creditors (banks) and investors in the form of bonds, loans or share issues.

Of course, the company needs to pay cash when it needs to repay principal and interest and shareholders' dividends.Financing pipeline has always been Tesla, Inc. 's largest source of cash, but also the secret of its standing.

在2017Tesla, Inc. received more cash from financing sources in44100 million US dollars! Whether this figure is familiar or not, yes, it is consistent with investment expenditure. Therefore, the key to good enterprise financial management is to maintain the balance between these major channels. When you spend too much cash too quickly, the company is easy to go bankrupt. When you produce too much cash, it also means that the company is inefficient or lacks innovation.

In fact, for example, Apple Inc's hot sales of products over the past decade have led to a lot of cash on his account, and his investors want him to spend more on investment.2000Billions of dollars in cash are spent on innovation. But Apple Inc chose to pay dividends to shareholders.

So it's also an interesting phenomenon, between happy companies with so much money that they can only pay dividends, and tough companies that have a lot of innovative ideas but can't earn so much cash. So it has been reported that Apple Inc should buy Tesla, Inc., in fact, there is logic.

Back to the point, the financing channel is Tesla, Inc. 's vital lifeline. As long as creditors and investors are willing to give Tesla, Inc. a steady stream of blood transfusions, Musk can continue to realize his dream of the future. But on the other hand, if the supply is cut off, Tesla, Inc. will not be able to play.

Under what circumstances will the cash supply be cut off?

1、For the creditor, as long as you have good credit, he is willing to continue to lend to you.。

They consider two issues, one is your repayment ability and credit. The second is how high the interest rate is.

The higher the repayment ability and credit, the lower the interest rate, and vice versa.

Tesla, Inc. 's loan reached $3.2 billion in 2017, but it doesn't matter, as long as Tesla, Inc. maintains his credit, future creditors will still be happy to lend it money.

But how to measure credit? It is given through the CRA (credit rating agency) credit rating agency. These institutions always have a set of "scientific" and "open" rules for different companies.

Note: the Lehman Brothers bonds that have failed here were once triple-A bonds.

Tesla, Inc. 's credit rating has been between B2 and B3, which is given by Moody's Corporation according to his debt structure, which is already quite high. The reason is that Tesla, Inc. has been losing money, and second, its total debt has reached US $10.3 billion, which accounts for 90% of its total assets of US $11.8 billion!

Although Tesla, Inc. accounts for a high proportion of debt, if you look at his peers, there are more powerful people than him. Ford is more indebted, but its credit rating is higher, so you know the rules.

So as long as Tesla, Inc. does not let the current business situation deteriorate, or even has been slightly better, he can keep playing around in borrowing money.

2、IPOIt's important.

Tesla, Inc. was listed on NASDAQ in 2010. At that time, the financing of new shares reached 226 million US dollars.

But the money did not last long, and since then Tesla, Inc. raised a total of nearly $4.6 billion through several rounds of equity financing in the capital market.

It is very cost-effective for Tesla, Inc. to raise money by issuing shares.

First of all, Tesla, Inc. 's stock price is very high, so he can raise enough money by issuing a small number of shares. This also means that the shares of the original shareholders will not be diluted much. In addition, the funds raised by issuing shares do not have to be repaid. There is no need to pay back the money, and there is no need to pay dividends in Tesla, Inc. 's current financial situation.

I'm going to talk about why investors and institutions still buy it. Because, like their creditors, they believe that Tesla, Inc. 's situation will not deteriorate, develop rapidly and will turn losses into profits in the future. If the reality happens in accordance with this, then creditors will be repaid principal and interest, and investors can enjoy the appreciation of the stock.

But on the contrary, investors will lose all their money, and creditors will sell the company's assets to recover some of the losses. This is also a "three-way deal", and can this deal be done?

Yes, as long as Tesla, Inc. continues his ideal sales situation.

Tesla, Inc. sold few cars from 2010 to 2015, but by 2017 his cumulative sales had reached 100000. Tesla, Inc. already has 600000 orders on hand in 2018, so that it never has a headache that it cannot sell, but needs to increase its production capacity and expand its scale.

Every time Tesla, Inc. starts production of a new car, they have a large negative cash flow, which reaches its maximum when production begins to climb slowly a few months after the production line starts to operate, and then things get better.

From the financial expenditure of Tesla, Inc. in the first quarter, the investment in model 3 production line has begun to slow down. This means that the peak of Tesla, Inc. 's negative cash flow (burning money) has passed, and the production of model 3 has been on the right track since Musk personally took over. At its shareholder meeting on June 5th, Musk said it would be profitable or even cash-flowing in the third or fourth quarter of this year, and announced that model3 was leapfrogging production of 3500 to 5000 vehicles a week.

Although we still need to see the actual development trend, it seems that this is not unreasonable talk.

Tesla, Inc. Stock Price Logic: future Investment and value Investment

The times make heroes, and so do heroes.

Tesla, Inc. 's business model of perennial losses and a lot of debt is actually very common for startups and even the electric car industry. It is just that it has developed to the current scale of Tesla, Inc., it is very difficult for ordinary people to treat it as a start-up company, so its way of doing business has become an anomaly in today's finance.

In fact, there are nothing more than two points.First, Tesla, Inc. is extremely ambitious, and in his eyes, his current achievement is only the beginning, so it does not care whether it can make a profit at this stage; second, the market release of electric vehicles is at a critical point, and the trend that fuel vehicles will be eliminated in the next 10 to 15 years is certain. Electric cars in the future are likely to be upgraded as quickly as electronic products.Who can guess the Tesla, Inc. robot production line, each car will even record all the screw data before leaving the factory, we have seen first-hand how important the first machine is in the battlefield of smartphones.

Risk? Of course there is. It is also very simple to avoid these risks. If Tesla, Inc. is purely for profit, it is actually very easy. Do not spend a lot of money to expand smart factories, do not choose to add tens of thousands of charging stations, and constantly do research and development for product upgrades.

Tesla, Inc. chose to spend a lot of money, not because he could not, but because Musk knew that the future would be a world of intelligent manufacturing and intelligent travel. Tesla, Inc. has established a solid user group that is the envy of traditional car companies, and the products have been verified and in short supply. The terrible thing is that they are still making breakthroughs. In this era when electric transportation is about to change, the share price of such a powerful player is sought after. Behind it, everyone is still optimistic about this era.

The author predicts that even if model3 production capacity is ideal to achieve profitability, it will not last, because with the launch of the next few big projects (Model Y, electric truck semi, and possible Tesla, Inc. China factory), Tesla, Inc. is bound to usher in another round or even several rounds of money-burning craze. Musk, who aspires from afar, is not his style to slow down and stop counting money. As long as the situation permits, he will sprint forward at any cost.

So choosing when to invest in Tesla, Inc. is actually very subtle. Buffett chose Apple Inc in the Cook era, and you will choose when to get on the bus.

Musk has repeatedly painted us a vision of intelligence, covering manufacturing, travel, logistics, energy and space. Each of them is like science fiction of the future, but its execution and persistence make people feel that it may not be so far away from realization. This feeling has been felt before, when Jobs and Tesla, Inc. changed the world. These may be the support and reasons for the rise of Tesla, Inc. 's share price.

(author: Huaguang Charlie)