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EV King Tesla – Where Did the Cash Go?

by Neal Dikeman, chief blogger Cleantechblog.com

Since it’s launch, cleantech darling Tesla (NASDAQ:TSLA) has delivered huge revenue growth in the electric vehicle market.  With a market cap of over $20 billion, it’s more than a 1/3rd of that of the massively higher volume GM or Ford.  Largely the market cap has been driven by phenomenal growth numbers, 60% YoY revenues last in 2014, and the company forecasts 70% increase in unit sales YoY in 2015.

But let’s take a deeper look.

The Company trades at 7.5x enterprise value/revenues, and 26x price/book.  At the current market cap, it needs to deliver the same revenue growth for another 4-5 years before normal auto net profit margins would bring it’s PE into line with the the other top automakers.  Of course, that assumes no stock price growth during that time either!  Our quick and dirty assessment test:

Take 2014 revenues, roll forward at the YoY growth rate of 60%.  Take the average net profit margins and P/Es of the major autos (we used two groupings, 2-3% and 20-25, and 7-8% and 12-17), roll forward until the PEs align, see what year it is (2018-2020).   That’s our crude measure of how many years of growth are priced in.  And it puts Tesla at between a $20-$50 Billion/year company (7-15 current levels) before it justifies it’s current market cap.  Or c. 300,000-1.5 mm cars per year depending on price assumptions.  Up from 35,000 last year.

Does it have the wherewhithal to do that?

Tesla Financials

 Well, looks awfully tight.  The numbers technically work, continued growth will cure a lot of ills.  But while nominally EBITDA positive now, the company has been chewing cash in order to sustain future grow.  2014 burned nearly $1 billon in cash in losses, working capital and capex to anchor that growth, almost as much in cash burn as the company delivered in revenue growth.

Positive progress on working capital in 2013 disappeared into huge inventory and receivables expansion at the end of 2014, and interest on the new debt for the capital expansions alone chewed up 10% of gross margin, while both R&D and SG&A continue to accelerate, doubling in 2014 to outpace revenue growth by more than 50%.

The cash needs this time around were fueled by debt, which rose over $1.8 bil to 75% of revenues.  Overall liabilities rose even more.  Current net cash on hand at YE was a negative half a billion dollars, seven hundred million worse than this time last year.

The company will argue it is investing in growth, and you can see why it better be.  With almost every cost and balance sheet line currently outpacing revenue growth, at some point a company needs to start doing more making and less spending.

So yes, continued growth outlook is still exhilarating (depending on your views of the competition and oil price impact), but the cost to drive it is still extremely high.  I think we will look back and see that 2014 and 2015 were crucial set up years for Tesla, and the really proof in the pudding is still probably 24 months in front of us.  And my guess is Tesla will be back hitting the market for equity and debt again and again to keep the growth engine going before it’s done.

 The author does not own a securities position in TSLA.  Any opinion expressed herein is the opinion of the author, not Cleantech Blog nor any employer or company affiliated with the author.

Plugin Electrics vs All Electric Battery EVs, Epic Throwdown?

I get this every time I discuss EVs.  Something along the lines of oh, you shouldn’t be including PHEVs in with EVs, they don’t count, or are not real EVs, just a stopgap etc.

I tend to think PHEVs may be better product.  At least for now.  And I follow the GM’s Chevy Volt vs the Nissan Leaf with interest.

The main arguments on each:

Plug in Hybrids

  • No range anxiety
  • Still need gasoline
  • Can fuel up at either electric charging station, your home or gas station
  • Depending on driving patterns, may not need MUCH gasoline at all
  • Expensive because:  need both gasoline and electric systems, and batteries are still pretty expensive, even with a fraction of the amount that’s in an EV
  • Get all the torque and quiet and acceleration punch of an EV without the short range hassle
  • But not really an EV, after a few miles it’s “just a hybrid”
  • Future is just a stop gap until EV batteries get cheap? Or just a better car with all the benes and no cons?

 

Electric Vehicles

  • No gasoline at all (fueled by a mix of 50% coal,20% gas, and the rest nuke and hydro with a little wind 🙂 )
  • Amazing torque and acceleration
  • Dead quiet no emissions
  • Fairly slow to charge compared to gas
  • Lack of charging stations is getting solved, but still somewhat an issue
  • Switching one fuel for another, no extra flexibility on fuel
  • Expensive because lithium ion batteries are still pricey and way a lot
  • Future is cheaper better batteries?  Or they never get there and the future never arrives?

I tend to think the combination of plugins and EVs has actually worked together solved range anxiety.  As a consumer, I get to pick from a full basket when I buy, Leaf, Volt, Prius, Model S, lots of pricey batteries to deal with range anxiety, a plug in that gets me almost there with zero range issues, or a Leaf in between.  Whatever range anxiety I had disappears into consumer choice, just like it should.  I don’t think pure EV is any better or worse than a plugin, just a different choice.  They work together in the fleet, too, plug ins help drive demand for EV charging stations that are critical to electric car success, and EVs drive the cost down on the batteries that brings the plugin costs into line.  Unlike with the Prius over a decade ago, it’s not a single car changing the world, it’s the combination that’s working well for us.

Cleantech Blog Wants a Leaf, Dammit

I drove my first Nissan Leaf on Saturday. The ultimate cleantech car.  Not Cleantech Blog’s first EV drive, as our blogger John Addison has blogged on the Leaf and other EVs numerous times before. But only my second EV drive.  My Leaf test drive followed a previous conversation with Mark Perry, one of the senior product guys at Nissan, who gave me a bit of insight ahead of time into what all went into the Leaf. I must admit, I was rougher on him than almost any interview I’ve ever done, and was definitely a skeptic. I pushed him hard on why they didn’t push the cost to get just a bit more range and a bit faster charging, and he was unable to share too much on the record.  I’m also incredulous at the minute volumes (20,000 in the US this year) they are producing.  One version?  Every product decision middle of the road?  No real EV options?  Tiny production for the first year?  Scatter that production around the world?  I think at heart Nissan has been scared to death that this thing will flop.  They’ve treated the Leaf like a pilot, and marketed it like a real car.  I say why not bet on it?  They wouldn’t release any other car with such puny production capacity.   As it is, if it works, their 12 to 24 month advantage over the competition just evaporates into market share limbo.  And best yet, it’s a great looking car.  I think they did a damn good job for the first honest to goodness mass market EV on the planet.  And an amazing job marketing.  But have the courage of your convictions!  I want a Leaf, Dammit!

The Leaf Electric Drive Tour has to be one of the best sales pitches I’ve ever received. Think timeshare sales tour, except fun, no pressure, and not obnoxious. (oh and no donuts).  By the end of the group pre-ride tour – you could feel your adrenaline and the excitement just to get it one – it felt like a Disney World ride. And the best part was no salesmen ever showed up! You just leave thinking where do I sign?

Of course, there was the guy in front of me who commented he bought one without ever driving it, and was just coming for a test drive while waiting for it to arrive.  He was not the only excited person in a crowd of excited people.

To be honest, the Leaf looks good, feels good, handles well, and they’ve thought about almost everything I could come up with.

For instance:

  • The “fuel tank’ is measured in estimate miles left, not gallons of KWH – which makes sense I just never thought about it.
  • You can pre heat and pre cool it from your cell phone.
  • A lot of the car’s interior is made from recycled materials.
  • The 600 lb batteries can be swapped out cell by cell and component by component for repair. They have an 8 year warranty – but only 5 years on the EV components and 3 bumper to bumper (which I found odd – Nissan trusts its battery life more than the life of the rest of the car?)
  • The battery power level fades <1% per month when sitting unplugged.  Wish my blackberry did that well.
  • The Leaf can text you when it’s thirsty.
  • You can see component by component how much juice you draw.
  • You can get Leaf apps to help you plan out your route by juice level.
  • The Leaf knows where the fast chargers are around town, and knows if they are occupied.
  • The Leaf will shut down non essentials and ping you the closer it gets to out.
  • It has a back up capacitor to keep it from dying when you run out of juice.
  • There will be a hundred chargers in the first year in Houston where I live – most of them are expected to be free (like at grocery stores and malls and stuff that want your business, and a bunch arranged by Reliant, one one of the big Texas utilities).
  • Oh, and free roadside assistance for 3 years to pick you up if you run out of juice. (I swear I heard that right!)

Now for the general EV advantages:

  • You can hear your self think (and your passenger, too). It makes about as much noise as well, a leaf falling.
  • It turns in almost the space of the dining room table I’m writing this blog on.
  • It accelerates like demon hummingbird on meth.  The beauty about EVs is you can get lots of acceleration and torque at low RPMs.  Nissan quotes 100% of torque at 1,000 RPMs vs. a V8 that might have 40% at 1,000 RPMs.  I can believe it.
  • The maintenance is like, nil.  My kind of car.  No oil.  No transmission fluid.  No spark plugs.  Breakpads don’t wear as much because regenerative breaking uses your drive train to help break.  This one is passively cooled for the batteries, but does have coolant for the EV parts.  They have a cool flat cell design that dissipates heat and makes that possible.  Some guy in the audience asked it there were really only 5 moving parts in the whole Leaf.  (uhm no, but damn that marketing group must be something else to get THAT rumor going!)
  • Did I mention it’s cool and electric and has lots of gadgets and apps?

. . .

But I’m not going to buy one.  As a car, it’s just not there yet.  Almost – but not quite.  I’m a 15 year car guy.  I don’t believe in the throw away economy when it comes to cars.  I want my next car to last til the cows come home.  As I said, just not quiiiiiiite there yet.

  • Charging time – eh.  Can fast charge on 480V in 30 minutes.  But you’re not going to have a fast charger in your home.  Needs like 8 hours on 220V (you buy a 220V charging station installed at your house).  On a 110V wall plug, think more like most of  day.  These are good numbers, but from a guy who sometimes doesn’t always fill up the whole tank if I’m at a slow gas pump – uh, not very impressive.  Of note, Ford just announced its Focus will charge in 3 to 4 hours – bascially they just use a 6.6 KW charger instead of Nissan’s 3.3,  about a 7% cost saving move according to Mark Perry.  I kept asking the whyb we didn’t see a more expensive fast charge version if it’s the cheap – and better yet a fast charging version with just a tad more batteries, and no answer really forthcoming.  Back to my Nissan wasn’t ready to swing for the fences, and has treated the Leaf has a high profile pilot.
  • Saves money, sort of.  You fill up your car on $2-$3 per “tank”.  24 KWH battery pack, $0.10/kwh.  Nissan posted a target miles per $ for a number of cars as a comparison, about 37 for the Leaf, 18 for a Toyota Prius, 14 for a Ford Fusion Hybrid, and 5 for a Hummer.  Estimates using $0.10/kwh and $2.80 per gallon, I believe.  Great, saves money.  Um, not so much.  $2800 savings over 100,000 miles/8 years vs a Prius, and $4400 vs. a Ford Fusion Hybrid.  Does not pay for the cost difference.  Of course, after some really rich subsidies, you might say, yes it does!
  • 100 mile average range target.  Not bad.  But not quite good either.  Especially as I’m 30 miles from the airport.  Basically no running errands on trips to the airport day – especially since it’s all freeway and no way I’m going to the airport without AC in Houston most days.
  • Or put another way, I drove across town to test drive my Leaf.  When I got in for my 10.30 a.m. appointment, the car had been test driving intermittently for a couple of hours, kind of like running errands.  The range said 72 miles without AC, 63 miles with AC.  My house is 34.2 miles from the test drive location in Pearland.  If I’d owned a Leaf, the range would not have gotten me to the Leaf test drive.  That was very unsettling.  (Of course, if I lived in Pearland, then I’d have gotten to drive the Leaf with no problem, but now I’d be 40 miles from the airport).
  • Gets worse.  Remember I’m a 15 year car guy.  I asked them what happened at the end of my 8 year battery warranty.  They assume future battery packs will be backwards compatible and could be replaced if need be (my Corolla and Accord are both approaching 15 years and I have no intention of replacing the engine).  And they estimate the battery will be at about 80% capacity in year 8.  Not good, wouldn’t even be able to pick up friends from the airport under any circumstances.  Not sure I could get to Costco, HEB, and parents house and back at year 15.  And for those non 15 year care guys, who do you think is going to buy your 6 year old Leaf  with an 85 mile range when you’re tired of it?
  • Which brings us to the final reason I’m sadly not going to buy a Leaf.  Ford is launching an EV Focus later this year.  The Volt is out.  A dozen more are coming.  In 24 months, the Leaf will be the first, but likely not the best.  By year 3, EV battery life will have improved.   By year 6-10 when you’re trying to sell it, it’ll be the slow charging, short range, out of warranty really cool old obsolete car, and it probably won’t last 15 years.  🙁

So I will be buying an EV. Just not this one.  Just not now.  But kudos to Nissan for making a really cool car that almost got an electric vehicle skeptic over the line.

PS For the record, I’ve pinged Nissan PR a dozen times asking for one to drive around for a couple of weeks and see what it’s like in real world conditions.  Never gotten a call.

PPS  Despite all that, I want a Leaf, Dammit!

Lithium ETF Plays Growth of Electric Cars and Mobile Electronics

By John Addison (10/26/10)

You may be reading this article thanks to the lithium battery in your notebook computer, smartphone, or other mobile device. Demand for lithium is forecasted to double in this decade thanks to a wide range of applications for this metal that is half the weight of water: materials, glass, pharmaceuticals, mobile electronics, power tools, hybrid cars, and electric cars.

Currently, electric cars cost more to purchase than many gasoline-powered cars, but less to fuel. Electric charging is equivalent to fueling with gasoline at 75 cents per gallon in many situations. Nighttime charge rates are even lower.

In 2012, Ford (F) will deliver about 100,000 lithium battery packs in its electric vehicles, newplug-in hybrid, and in all hybrids. Nissan (NSANY) will bring on-line a new battery plant in Tennessee that can make 200,000 lithium battery packs annually for its LEAF and hybrids. These volumes, improved battery chemistry, and streamlined supply chains will drive down the cost of lithium batteries. Automotive lithium battery packs currently cost about $700 per kilowatt-hour. By the end of the decade, automakers are optimistic that they will lower the cost to $250/kWh, at which point electric cars will be less expensive to buy than most gasoline cars.

What do the financial markets make of lithium? To find out, I interviewed Bruno del Ama, CEO of Global X Funds. His exchange-traded fund, Global X Lithium ETF (NYSE: LIT), was launched on July 23, 2010, at 16. It has already soared to 20. For some investors, lithium is the new gold. 10 of the fund holdings are in lithium mining and processing companies; 10 in lithium battery makers.

The fund is dominated with large mining firms such as Sociedad Quimica y Minera de Chile (SQM), FMC Corporation (FMC), and Rockwood Holdings (ROC). The fund is not a dream for environmentally and socially conscience investors. These companies mine a range of metals, using energy intensive processes, chemicals, and put miners in harm’s way.

The fund’s largest lithium battery company holdings include Saft, Ener1, ABT, GS Yuasa, and A123. Saft in a joint venture (JV) with Johnson Controls supplies Ford for the Transit Connect Electric and Mercedes hybrids. GS Yuasa supplies the current Japanese EV leader, Mitsubishi; GS Yuasa is well positioned to be Honda’s supplier for new electric and plug-in hybrids. Ener1 is betting on the Think. A123 is supplying Fisker and non-automotive applications.

The fund does not include the battery companies most successful in lithium: NEC, Panasonic, Samsung, and LG Chem. These diversified giants are excluded because their lithium battery business is less than the 15 percent minimum to be included in LIT. NEC is in the AESC joint venture with Nissan. Panasonic supplies Toyota and Tesla. Samsung is in a JV with Bosch to supply makers such as BMW. LG Chem’s Compact Power is supplying lithium batteries for the Chevrolet Volt and the Ford Electric.

Scientific American reports a 500-year supply of lithium, compared with only decades of available cooper. Demand for lithium will increase as we expand from devices that only need one battery cell, to notebook PCs needing the equivalent of 8, to hybrid cars that use the equivalent of 125, to the Nissan LEAF, which uses the equivalent of 3,000.Reuters Lithium Facts

It would take 60 million cars to use the current annual production of lithium. Although there is plenty of lithium, prices will increase to keep up with the growing demand. Since a typical electric car battery pack only uses 4 pounds of lithium, the price will have little impact on the total battery cost.

There is no guarantee that today’s lithium ion batteries will be the leaders in future decades. Labs to start-ups are working on lithium air, zinc air, fuel cells, ultracapacitors, and hybrid energy storage. It is challenging to overcome lithium ion’s cost and scale advantages. More energy can be stored in an ounce of this metal than any practical metal alternative.

By 2020, the California Energy Commission forecasts 1.5 million plug-in cars on California roads. Clean Fleet Report forecasts 10 million for the USA. Cars, mobile electronics, and many applications will fuel the demand for the lightest of metals and create growth opportunities for the leading battery suppliers.

By John Addison. Publisher of the Clean Fleet Report and conference speaker. Disclosure: author owns shares of LIT.