EV King Tesla – Where Did the Cash Go?

by Neal Dikeman, chief blogger

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.

Eco Pro 2013

This December, I had the pleasure of attending Eco-Products Exhibition (Eco-Pro) 2013 in Tokyo, Japan. Though not well known outside of Asia, Eco-Pro is the largest event of its kind in this part of the world. In its 15th year, 185, 000 visitors attended this years event with 711 participants showcasing their environment-oriented products, services, and technologies. Though a majority of them are well-known big companies, mid- or small-size enterprises (SMEs), NGOs, and universities had a large presence as well.

Every year, Eco-Pro features a particular theme. With the recovery of Fukushima on everyone’s mind and the uncertainty in fossil fuel supply, the focus on 2013 was on renewable energy.  In July 2012, the government of Japan introduced a feed-in tariff (FIT) to promote energy generation from renewable resources including solar, wind, geothermal, and biomass. As a result, the application for the development of renewable energy reached 13 GW (million kW) in February 2013, only six months after the introduction of the FIT scheme. For investors in these projects, this policy guarantees 100% purchase of all power at a fixed price for electricity generated by solar PV systems larger than 10kW.

In spite of this monumental achievement, only about 10% is actually generating power. Japan still gets less than 2% of its energy from renewable sources (excluding hydropower).

The key to integration of renewable energy sources, which are highly intermittent, is it the deployment of energy storage systems to store energy when it is not needed and release it when demand is higher.

As one of the largest solar PV panel maker in the world, Kyocera is also operating a utility scale solar plant (so-called mega-solar projects) with a rating of 70 MW, enough to power 22,000 households in Kyushu. To store the excess energy produced during the daytime, the company has developed 14.4kWh lithium ion batteries at the household level. The capacity is sufficient to operate a refrigerator and TV simultaneously for 24 hours during power outages. While these units cost $24,000, smaller batteries from Panasonic can be purchased for as low as $9000.

The interface between renewable energy generators and the grid or battery system is an area of technology that is undergoing rapid innovation and is one of the barriers to deploying widespread renewable energy systems. In Japan, NEC has developed inverters that requires no power conditioning. That means direct current from a solar panel can go directly into a battery without being converted into alternating current (AC), which is how electricity is generally transmitted on a grid. This eliminates power loss and boosts overall efficiency.

While the technologies demonstrated here are inspiring, the institutional aspects of solar projects was also highlighted at this year’s Eco-Pro. Developing the market conditions to properly manage solar projects remains a big challenge. In Japan, mega-solar projects are typically profit-driven rather than as CSR. There is a concern that after the 20-year FIT period is over and the initial costs have been paid off, the operators may lose interest in maintaining these facilities, which would be a detriment to the local community it serves.

Nevertheless, these projects can contribute to the well-being of society if managed appropriately. For example, in Inami town in Wakayama prefecture, the local government is working with private businesses and its university to develop their solar project. This is the first public-private partnership of its kind of Japan and is operated by Plus Social. The company will take in the revenues under this scheme while supporting local activities in Wakayama prefecture and Kyoto. At the same time, Ryukoku University will play an important role in educating the public in Inami town.

Innovations in Vehicles

Another major area of innovation for the environment is in cars and other vehicles in the transportation sector. Complementing the integration of renewable energy are electric vehicles that could not only use emission-free electricity from the sun or wind, they can act at storage mediums to accommodate the variable nature of these sources on the grid. Below are three automotive technologies featured at this year’s Eco-Pro. They demonstrate new innovations that not only use less energy, but also reduce pollution.


toyotaToyota’s Prius has set the standard for hybrid vehicles with not only domestic sales but also a formidable international market. At this Eco-Pro, they showcased the new Prius HPV, which can be wirelessly charged when parked. By parking properly over a power source, the vehicle is charged by a system consisting of an on-board charging unit, a wireless communication control, and a secondary coil. It relies on resonance between the oscillating magnetic field between the two coils so that power can be transmitted to charge an exhausted battery. With the 4.4kWh lithium-ion battery pack, the car can be charged in 90 minutes.


BridgestoneAs one of the world’s largest producer or tires for vehicles, Bridgestone has begun development of next generation Air Free (non-pneumatic) tire. Today’s conventional tires requires an inner tube. Although their durability and use have improved substantial since vehicles first came on the road, their disposal has been problematic. Often they are left in landfills where the results could be toxic if they catch on tire. On the other hand, Bridgestone’s new concept tires have no inner tube or metal components inside.

With a unique structure of spokes stretching along the inner sides of the tires supporting the weight of the vehicle, there is no need to periodically refill the tires with air, meaning that the tires require less maintenance. At the same the worry of punctures is eliminated. The spoke structure within the tire is made from reusable thermoplastic resin, and along with the rubber in the tread portion, the materials used in the tires are 100 percent recyclable.

While the R&D and have only been going on a couple years, the company expects to commercialize them in a few years. They will first appear on light vehicles and those that travel short distances in the city.


mazdaAs companies around the world are now touting their efforts to improve the energy efficiency of their products but also in their production process, the car industry is not standing still.

Car companies have poured enormous investments in building vehicles with better mileage but some are also developing new technologies to lower the energy consumption during the production process.

Mazda demonstrated their superlight aluminum engine, but they also showed how the manufacturing could be improved. It turns out that the most energy intensive part of automobile production is not the assembly itself, but the painting process. That’s because it consists of multiple coats of paint that have to be baked. By applying a new process, Mazda has been able to paint their cars with fewer steps, less volatile chemicals, and less energy in the coating process.

New Hands-Free Inductive Charging at Google

Google makes innovative use of electric vehicles and charging stations. For employees, Google took an early lead in converting Toyota Prii (yep that’s the official plural of Prius) to be plug-in hybrids. Then Google installed beautiful solar covered parking including charge stations so that electric cars can be charged with sunlight.

At its headquarters, Google is now showing us how to charge hands-free.  No plug. No cord. Using Evatran Plugless Power’s inductive charging system, one of Google’s maintenance short-range EVs parks in close proximity of the charger and charging begins. The Evatran unit is Level 2 (7.7 kW, 240V at 32A). The light EV was converted to use the inductive charging.

Google is also conducting other important pilots including testing the new Toyota Prius Plug-in, not a conversion, but the 2012 model from Toyota. Soon, Google will be testing the Honda Fit Electric and other plug-in cars. Several Google founders drive Tesla Roadsters. Google founders Larry Page and Sergey Brin are Stanford University grad student “drop-outs” as is Telsa CEO and Founder, Elon Musk.  None regret the decision to change the world a priority over getting their PhDs.

Google is even approved by FERC to be an electric utility. Cloud services will be at the heart of the smart grid and smart charging.  Early electric car drivers use Google Maps to find the nearest charging station. Will Google charge your electric cars?

How Inductive Electric Car Charging Works

Historically, inductive charging has been too inefficient, wasting valuable electricity and charging hours. Evatran thinks that they can get to 90 percent efficient; they’re not there yet. How does it work? A Plugless Power vehicle adapter is permanently mounted onto the vehicle. A fixed Plugless Power station, including both a floor-mounted parking block and a separate control tower, is installed in the garage or parking space.

Evatran states that its technology is safe. When the equipped vehicle pulls up to the parking space, the parking block automatically positions itself to align with the vehicle adapter and begins charging. With their electromagnetic induction, no actual flow of electricity occurs between the vehicle adapter and the parking block.

Will inductive charging catch-on? In the late 1990s, inductive charging competed with conductive. Multiple incompatible systems helped kill major electric car success. GM, Ford, Toyota, Honda, Nissan, and all the automakers have devoted years working with utilities to have a common Level 2 J1772 smart charging standard. Now they are going thru the pain of trying to get consumers to install wall-mounted chargers, only to be frustrated with obsolete building codes, over worked city inspectors, and electric utility frontline employees who find reasons to say “No to EV charging.” Adding inductive charging would compound the issues.

General Motors puts Inductive Charging Inside

Automakers are interested in proximity charging inside the car when we fill the cars with collegues or kids with their iPhones, Droids, iPads, games, and other mobile electronics. Powermat is not only receiving a $5 million investment from GM Ventures, Powermat will be offered in many 2012 GM cars to give customers proximity charging of mobile devices inside the car.

What about America’s 14 million fleet vehicles? Inductive charging could be a winner. Fleets can install their own systems without needing a universal standard. Think about taxis that wait in queues. Consider millions of delivery vehicles. Light utility vehicles are popular on university, government, and corporate campuses. These are also good candidates for inductive charging, as Google is demonstrating.

What Should Cleantech Mean for Vehicle Safety?

Earlier this month, President Obama signed into law the Pedestrian Safety Enhancement Act, which will require quiet electric and hybrid vehicles to emit a sound that allows the car to be detected by blind pedestrians. The interesting part of this law, which received the support of the Alliance of Automobile Manufacturers, was that it did not base its compliance requirements on some measure of quietness, but rather on the propulsion technology used. That significant detail has me wondering: what role should clean technology play in promoting safety, particularly in the auto industry?

Clearly, every car on the road must guarantee some base level of safe operation (example: batteries should not cause their vehicle to explode). But beyond that promise of reliability, the argument could go in two very different directions.

First, the call for more safety: “The future of personal transportation would not be bright with today’s level of danger on the road, so clean technology should assume higher standards of vehicle safety.”

There’s no denying the societal repercussions of auto accidents: according to the National Highway Traffic Safety Administration (NHTSA), in 2009 over 33,000 people died in over 5.5 million crashes in the U.S. at an economic cost of over $230 billion. Though NHTSA did not publish the statistic, the environmental impact related to property loss as well as hazardous material spillage was significant. And 2009 was the safest year on the road in ALMOST 50 YEARS. The safety hawks among us would argue that if today’s electric vehicles represent the mainstream choice for the car of the future, automakers should use them to set the standard for future safety technology. Furthermore, there’s nothing sustainable about scrapping so many crashed vehicles. Given that today’s EVs and hybrids are often more energy-intensive to build than conventional cars, one might argue that automakers have an obligation to incorporate accident avoidance technology if they are going to market their product’s sustainability.

On the other hand, there could be an argument for even less safety: “Electric vehicle technology is not where it needs to be for mainstream acceptance, but our environment needs a solution now. Two of the biggest challenges for today’s EVs are weight and cost. Limiting the safety spec required by law would provide EVs with a competitive advantage to spark market acceptance and fund future development.”

A few years back, NHTSA estimated that federal safety standards added $839 of cost and 125 lbs of weight to the average passenger car. Inflation has turned that cost into over $1,000, and 125 lbs represents the bare minimum safety spec, which greatly underestimates most automakers’ equipment levels. Industry research shows that early adopters of new technology are more risk averse and less concerned with safety than the mainstream. So in the interest of moving the technology along, why not give them what they want? By many estimates, $1,000 will buy an extra 2kWh of battery in the next couple of years, which could add an extra 10 miles of range. That would go a long way toward improving the value proposition of these products.

Looking to the future, Google has presented a vision of the autonomous automobile that could drive itself, coordinate with traffic, and solve both efficiency and safety problems simultaneously – but certainly at some cost and with huge commitments to behavioral changes (we Americans love our independence). In the meantime, what should clean tech mean for vehicle safety? I’d love to hear your thoughts!

Paul Hirsch is a Senior Product Planner at Toyota.