Tesla Doesn’t Burn Fuel, It Burns Cash/Bloomberg

Everyone loves Tesla.  Elon Musk has recruited a legion of dedicated followers who are inspired by his work.  His car is really good and a leader for the EV's that have come after his models.

Yet, Tesla may not survive, as we see here.  No doubt the technology will be around forever.  We hope Tesla survives as well.  Their leadership, their inspiration, is very much needed.

The company that Elon Musk built to usher in the electric-car future might not have enough cash to make it through the calendar year.

The anxieties that lurk beneath the tremendous ambition of Tesla Inc. moved into the forefront in recent weeks. The company again fell far short of its own production targets for the mass-market Model 3 sedan, another person died in a crash involving its assisted-driving feature and Musk entered into a public dispute with federal safety regulators. Tesla’s once high-flying stock, buffeted by a downgrade from credit analysts, has dropped 24 percent from its peak in September.

There’s a good reason to worry: No one has raised or spent money the way Elon Musk has. Nor has any other chief executive officer of a public company made a bankruptcy joke on Twitter at a time when so much seemed to be unraveling.

Tesla is going through money so fast that, without additional financing, there is now a genuine risk that the 15-year-old company could run out of cash in 2018. The company burns through more than $6,500 every minute, according to data compiled by Bloomberg. Free cash flow—the amount of cash a company generates after accounting for capital expenditures—has been negative for five consecutive quarters. That will be a key figure to watch when Tesla reports earnings May 2.

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Tesla makes three cars—the Model S and Model 3 sedans and the Model X SUV—at its only auto assembly plant, located in Fremont, California. There are aggressive plans to add an electric semi truck, a new roadster sports car and crossover to the production lineup in the next few years. While Musk’s vision for the future once called for extreme automation, the present day is all about manpower. Back in 2010, Tesla had just 899 employees. Today, the company has nearly 40,000 workers.

The ongoing hiring binge is probably contributing to Tesla’s financial straits. Tesla has added employees faster than it has boosted revenue in three of the last four years. This includes more than doubling the workforce in 2017, when the company was scaling up for Model 3 production and took on employees from SolarCity Corp.

Tesla’s employee roster more than tripled from 2014 to 2017, and revenue per employee stagnated. General Motors Co. and Ford Motor Co. each bring in about 2.5 times as much revenue per employee. And Tesla’s swollen employee total doesn’t even account for what Musk recently characterized as a “Russian nesting doll” of contractor and subcontractor companies engaged in production at Tesla.

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Since its founding in 2003, Tesla has been fueled by a kitchen-sink approach to finance shaped in the image of its chief executive. And the public face of the company has always been central to Tesla’s ability to raise money.

For the first seven years of the company’s existence, Tesla scraped by entirely on private and venture capital funds, the bulk of which came from Musk himself. In 2004, when Tesla raised $7.5 million in a Series A, Musk contributed $6.3 million and assumed the chairman role on Tesla’s board. In the throes of the 2008 recession, as Tesla struggled to survive, Musk orchestrated a $40 million debt deal that closed on Christmas Eve, hours before Tesla would have gone bankrupt.

Since its $225 million initial public offering in June 2010, Tesla has raised money by selling stock and convertible bonds, monetizing leases and floating junk bonds—the sort of thing almost any automaker might do. But the company has also been extraordinarily lucky. One rival, Daimler AG, made an early strategic equity investment. Another rival, Toyota Motor Corp., became an investor in May 2010 and sold the Fremont plant to Tesla for a bargain price.

Tesla’s clean-energy mission also sets it apart. The U.S. Department of Energy awarded Tesla a $465 million loan in 2010, which Tesla paid off early and in full in 2013. No other automaker has so far been able to convince legions of fans to put deposit money behind a revolutionary agenda or take advantage of government subsidies for emission-free vehicles to the degree that Tesla has.

“Elon Musk is an engineer, and so he treats raising capital as one element that he needs to solve,” said Andrea James, a former analyst who observed Musk’s repeated trips to Wall Street and briefly worked for the company in investor relations.

Tesla ended 2017 with $3.4 billion in cash on hand and $9.4 billion in outstanding debt, a testament to Musk’s borrowing prowess. Many analysts believe that Tesla will need to raise money again—and soon.

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Bruce Clark of Moody’s Investors Service recently warned that Tesla will need an additional $2 billion this year, and he noted that $1.2 billion of existing debt will come due by 2019. Short sellers remain convinced that Tesla is on the verge of an epic meltdown. Famed investor Jim Chanos of Kynikos Associates has predicted the company is headed for a “brick wall.”

But the 46-year-old Musk has a higher tolerance for risk than most. When Tesla released figures for first-quarter vehicle production and deliveries April 3, the company stressed that once it can produce 5,000 Model 3 cars per week—an elusive target so far—it will have positive operating cash flow. The company said that it “does not require an equity or debt raise this year, apart from standing credit lines.”

Jeff Osborne of Cowen & Co. isn’t convinced, noting that the company has raised cash in the past after making similar claims. He predicts Tesla will need to raise $3 billion by selling stock during the fourth quarter and an additional $2 billion in late 2019 to keep company resources above $1 billion in cash.

There’s another way Tesla compares unfavorably to its more mature peers: Musk and company spent $146 million on interest payments for its massive debt in the past quarter—roughly the same interest expense as GM, a company with approximately 10 times more revenue.

Elon Musk is one of our planet’s great hopes. I would offer a kidney to him if he needed it.

One of Tesla’s greatest strengths is its ability to monetize the patience and goodwill of its customers and loyal fans. The company is sitting on a staggering $854 million in customer deposits as of the end of 2017.

Since Tesla sells its products direct to consumers, without relying on a dealer network, customer deposits are cash payments that essentially serve as interest-free loans—and these loans can stretch on for years. If Tesla were to go bankrupt, those deposit holders would likely be wiped out.

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Tesla is holding customer deposits for two vehicles that aren’t even in production yet: an electric Tesla Semi ($20,000 deposit) and a next-generation Roadster (either $50,000 down or the $250,000 retail price paid up front to reserve a limited edition). Even customers interested in installing an array of solar roof panels or the company’s Powerwall home battery must hand over $1,000 to place an order.

Tesla doesn’t break out deposit numbers by car, but the vast majority comes from $1,000 reservations for the Model 3. When Musk first introduced the lower-priced sedan in March 2016, fans stood in long lines at Tesla stores. Two years later, the slower-than-expected pace of production means that most of the more than 400,000 reservation holders are still waiting. And new people appear to be joining the queue: As of April, the company reported “net Model 3 reservations remained stable.”

There’s an additional source of free money from loyal believers: An unknown number of customers have paid up for vehicle features—$3,000 for “Full Self Driving” capability, for example—that Tesla thus far hasn’t figured out or released to anyone.

The consumer psychology that sees hundreds of thousands of people essentially extending an interest-free loan to a public company is unusual, to say the least. Consider the devotion of Bruce Sidlinger, a 60-year-old aerospace engineer who lives in Flagstaff, Arizona:

“The morning after the Roadster was announced, I put a deposit down. Putting down $50,000 for a Roadster that won’t be out for a few years is kind of like buying a bond that returns zero. Elon Musk is one of our planet’s great hopes. I would offer a kidney to him if he needed it.”

Keep in mind that Sidlinger already owns both a Model S and a Model X. He drove across the country to Florida earlier this year in a car made by one Musk company so he could watch a rocket made by another Musk company take flight for the first time.

Even after depositors complete the purchase of a car, Tesla has a way to squeeze further financial juice from the transaction. The company produces only electric vehicles, giving it a unique ability to take advantage of California’s zero-emission vehicle mandate.

Here’s how it works: California uses its air-pollution authority to force automakers into selling a set number of non-polluting vehicles. Those that fall short can buy credits from other automakers, and an all-electric automaker probably will have plenty of credits to sell.

Since 2008, Tesla has sold more than $1.3 billion in regulatory credits. In 2017, the company delivered 103,181 cars globally but earned $360.3 million selling these emission credits, or roughly $3,500 per car. (Tesla does not break down auto sales per region or for specific states; nine additional states have adopted California’s program).

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Then, of course, there’s Tesla’s stock. Issuing new equity typically leads to dilution for existing shareholders—but not Musk. He has maintained control by regularly purchasing more shares and currently owns more than 33 million, or 20 percent of the company. The next largest shareholder, Fidelity, holds a 10 percent stake.

That was before Tesla shareholders in March voted to overwhelmingly approve an unprecedented compensation plan for Musk—a $2.6 billion award, the largest of its kind. His new package of 20.3 million option shares vests if he raises the company’s market cap to $650 billion and meets revenue and earnings targets.

This will give Musk the opportunity to acquire even more shares. If the award fully vests, Musk would own a 28 percent stake worth about $184 billion.

This unusual move is meant to counter a common anxiety that Musk is getting restless. Besides running SpaceX, which just authorized a $507 million fundraising round, he has started an underground tunneling operation called Boring Co., which recently raised $113 million in equity. (More than 90 percent of that came from Musk himself.) Fans are involved in the fundraising here, too, snapping up 50,000 Boring Co. hats ($20 each) and 20,000 flamethrowers ($500).

The new compensation package offers an assurance that Musk will stay at Tesla. The plan allows him to eventually become chief product officer while someone else runs the company—though he or she will still ultimately report to Musk.

But at some point, even his ability to pull down money from believers will be challenged unless real earnings materialize, something Musk acknowledged in an all-employee email he sent on April 17 that instantly leaked to reporters:

A fair criticism leveled at Tesla by outside critics is that you’re not a real company unless you generate a profit, meaning simply that revenue exceeds cost. It didn’t make sense to do that until reaching economies of scale, but now we are there. Going forward, we will be far more rigorous about expenditures. I have asked the Tesla finance team to comb through every expense worldwide, no matter how small, and cut everything that doesn’t have a strong value justification.

Musk recently admitted that “excessive automation at Tesla was a mistake” and said that “humans are underrated,” an indication that the costly legions of employees won’t be shrinking as quickly as he once imagined. In that email, he vowed to hire hundreds of additional factory workers. Tesla lists nearly 3,000 current job openings.

The fact that so much of his own wealth is on the line is part of what has so many investors willing to go along with him. “Elon Musk is all in,” says Ross Gerber of Gerber Kawasaki Wealth & Investment Management, an investor who has become one of the loudest Tesla bulls. “There’s not another CEO in America who is taking as enormous of a financial risk on their company.”

That’s a point on which Tesla believers and skeptics can agree: No other public company chief is taking financial risk quite like Musk.

Source: Data compiled by Bloomberg, company filings.

Note: Bloomberg calculates how much money Tesla is burning by taking the 12-month trailing free cash flow number ($-3,475.468M) and dividing that by the number of minutes in a year.

With assistance by: Claire Boston, Taka Endo, Tom Randall, Molly Smith, Craig Trudell, Brian Eckhouse and Brandon Kochkodin

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Batteries have a dirty secret/Vox

This is the complicated side of building a sustainable future.  We know the many benefits of clean energy, and we know renewables need some storage to make them really user friendly to the grid.  But, nothing is perfect.  Here we see the "dirty side" of battery storage.

Despite this data, the net gain of moving energy local and using storage as part of a microgrid is far better than fossil fuel and the long delivery systems we depend on today.  

Energy storage (batteries and other ways of storing electricity, like pumped water, compressed air, or molten salt) has generally been hailed as a “green” technology, key to enabling more renewable energy and reducing greenhouse gas emissions.

But energy storage has a dirty secret. The way it’s typically used in the US today, it enables more fossil-fueled energy and higher carbon emissions. Emissions are higher today than they would have been if no storage had ever been deployed in the US.

This is not intrinsic to the technology, by any means. If deployed strategically, energy storage can do all the things boosters say, making the grid more flexible, unlocking renewable energy, and reducing emissions.

But only if it is deployed strategically, which it generally hasn’t been.

In and of itself, energy storage is neither clean nor dirty — it is neutral, as likely to boost the revenue of fossil fuel plants as it is to help clean energy. If policymakers want to use it as a tool to enable clean energy, they need to be conscious of its characteristics and smarter about its deployment.

Why energy storage increases emissions

There is a growing body of scholarly research around energy storage; the key paper on its emission effects is by the Rochester Institute of Technology’s Eric Hittinger and Carnegie Mellon’s Inês Azevedo, in Environmental Science & Technology.

Modeling energy mixes and energy prices across the country, Hittinger and Azevedo determine that the deployment of energy storage increases emissions almost everywhere in the US today. Yikes.

By way of background, it’s important to understand that while energy storage can provide a wide array of services to the grid (more on that later), these days it is primarily used for energy arbitrage — storing energy when it is cheap (usually at night) and discharging it when it is more valuable (usually during the day). So it’s energy arbitrage that Hittinger and Azevedo model.

There are two reasons why energy storage deployed for the purpose of arbitrage increases emissions:

1) Storage increases the value of the energy sources it draws from (a source that can store some of its energy can generate more) and decreases the value of the energy sources it competes against when discharging. If the energy sources it draws from are more carbon-intensive than the energy sources it competes against, then it will have the effect of increasing the carbon intensity of the overall power mix.

Say a battery bank absorbs cheap energy being produced by coal plants overnight and then discharges it in the day, competing with natural gas combined-cycle (NGCC) plants. The net effect will be to favor coal against natural gas, thus increasing net emissions.

2) Every bit of energy stored also represents a bit of energy lost. The “round-trip efficiency” of energy storage — the amount of energy it releases relative to the amount put in — ranges, depending on the technology, from around 40 to 90 percent.

Let’s take, for representative purposes, 80 percent, a relatively optimistic assumption for the efficiency of lithium-ion batteries. For every 1 megawatt-hour put in, 0.80 megawatt-hours comes out.

That means, if it is stored along the way, getting 1 MWh to the customer requires generating 1.25 MWh. The more energy that gets stored, the more generation has to increase to compensate for the round-trip losses.

If the generation that increases to compensate for the losses is more carbon-intensive than the energy that storage displaces, net emissions nudge up.

Even when a battery stores zero-emissions renewable energy, it is not increasing or decreasing total generation; it’s just moving it around (unless the renewables would otherwise have been curtailed; see below). If coal steps in to cover for the renewable energy that is stored, but it displaces natural gas when it’s discharged, it still might increase net carbon emissions.

Indian State Of Maharashtra Signs Historic Agreement With Virgin Hyperloop One To Build First Hyperloop Route In India/RNN

Great to see we continue to find innovation in our future transportation systems.  These projects have immediate global impact on the economy and environment.

Virgin Hyperloop One today announced the Indian State of Maharashtra’s intent to build a hyperloop between Pune and Mumbai beginning with an operational demonstration track.

Virgin Group Founder and Virgin Hyperloop One Chairman Sir Richard Branson announced the Framework Agreement in the presence of the Hon’ble Prime Minister Narendra Modi and the Hon’ble Chief Minister of Maharashtra Devendra Fadnavis to begin the development of the route. This historic signing at the Magnetic Maharashtra event was also attended by Virgin Hyperloop One board members and key investors Sultan Ahmed bin Sulayem, CEO and Group Chairman of DP World, and Ziyavudin Magomedov, Chairman of Summa Group.

Recognizing the Maharashtra government’s contribution to the country’s economy, Indian Prime Minister Narendra Modi said, “51 per cent of total investments in India have come to Maharashtra, and the state is attracting global investors. The state’s overall development in the past few years is a shining example of change thinking and improving conditions in the country. Maharashtra government was ahead of all other Indian states in terms of infrastructure spend and the state is on its way to achieving its bold vision of a trillion-dollar economy.”

“I believe Virgin Hyperloop One could have the same impact upon India in the 21st century as trains did in the 20th century. The Pune–Mumbai route is an ideal first corridor as part of a national hyperloop network that could dramatically reduce travel times between India’s major cities to as little as two hours,” said Sir Richard Branson. “Virgin Hyperloop One can help India become a global transportation pioneer and forge a new world-changing industry.”

The hyperloop route will link central Pune, Navi Mumbai International Airport, and Mumbai in 25-minutes, connecting 26 million people and creating a thriving, competitive megaregion. The high-capacity passenger and cargo hyperloop route eventually will support 150 million passenger trips annually, saving more than 90 million hours of travel time, and providing citizens with greater opportunities and social and economic mobility. The hyperloop system will also have the potential for the rapid movement of palletized freight and light cargo between the Port of Mumbai and Pune, creating a robust backbone for on-demand deliveries, supply chains, and next-generation logistics.

The Pune–Mumbai route could result in USD $55 billion (INR 350,000 crores) in socio-economic benefits (time savings, emissions and accident reduction, operational cost savings, etc.) over 30 years of operation, according to an initial pre-feasibility study completed by Virgin Hyperloop One. The 100% electric, efficient hyperloop system will ease severe expressway congestion and could reduce greenhouse gas emissions by up to 150,000 tons annually....MORE AT RENEWABLE NOW NETWORK.com

Electric Buses Are Hurting the Oil Industry/Bloomberg

What a fascinating story.  There's a clear shift of spending on energy.  We think that bodes well for the future of our economy and environment.  Very good news.

A worker charges an electric bus in Shenzhen.

Photographer: Qilai Shen/Bloomberg

Electric buses were seen as a joke at an industry conference in Belgium seven years ago when the Chinese manufacturer BYD Co. showed an early model.

“Everyone was laughing at BYD for making a toy,” recalled Isbrand Ho, the Shenzhen-based company’s managing director in Europe. “And look now. Everyone has one.”

Suddenly, buses with battery-powered motors are a serious matter with the potential to revolutionize city transport—and add to the forces reshaping the energy industry. With China leading the way, making the traditional smog-belching diesel behemoth run on electricity is starting to eat away at fossil fuel demand.

The numbers are staggering. China had about 99 percent of the 385,000 electric buses on the roads worldwide in 2017, accounting for 17 percent of the country’s entire fleet. Every five weeks, Chinese cities add 9,500 of the zero-emissions transporters—the equivalent of London’s entire working fleet, according Bloomberg New Energy Finance.

All this is starting to make an observable reduction in fuel demand. And because they consume 30 times more fuel than average sized cars, their impact on energy use so far has become much greater than the passenger sedans produced by companies from Tesla Inc. to Toyota Motor Corp.

For every 1,000 battery-powered buses on the road, about 500 barrels a day of diesel fuel will be displaced from the market, according to BNEF calculations. This year, the volume of fuel not needed may rise 37 percent to 279,000 barrels a day because of electric transport including cars and light trucks, about as much oil as Greece consumes, according to BNEF. Buses account for about 233,000 barrels of that total.

A decade ago, Shenzhen was a typical example of a booming Chinese city that had given little thought to the environment. Its smog became so notorious that the government picked it for a pilot program for energy conservation and zero emissions vehicles in 2009. Two years later, the first electric buses rolled off BYD’s production line there. And in December, all of Shenzhen’s 16,359 buses were electric.

BYD had 13 percent of China’s electric bus market in 2016 and put 14,000 of the vehicles on the streets of Shenzhen alone. It’s built 35,000 so far and has capacity to build as many as 15,000 a year, Ho said.

“This segment is approaching the tipping point,” said Colin McKerracher, head of advanced transport at the London-based research unit of Bloomberg LP. “City governments all over the world are being taken to task over poor urban air quality. This pressure isn’t going away, and electric bus sales are positioned to benefit.”

China is ahead on electrifying its fleet because it has the world’s worst pollution problem. With a growing urban population and galloping energy demand, the nation’s legendary smogs were responsible for 1.6 million extra deaths in 2015, according to non-profit Berkeley Earth.

BYD estimates its buses have logged 17 billion kilometers (10 billion miles) and saved 6.8 billion liters (1.8 billion gallons) of fuel since they started ferrying passengers around the world’s busiest cities. That, according to Ho, adds up to 18 million tons of carbon dioxide pollution avoided, which is about as much as 3.8 million cars produce in each year.

“The first fleet of pure electric buses provided by BYD started operation in Shenzhen in 2011,” Ho said by phone. “Now, almost 10 years later, in other cities the air quality has worsened while—compared with those cities—Shenzhen’s is much better.”

AEP’s Clean Energy Strategy Will Carbon Dioxide by 80% from 2000 levels by 2050/RNN

Great news:

American Electric Power recently released a report outlining the company’s strategy for a clean energy future. The strategy includes new carbon dioxide emission reduction goals and investments in renewable resources and advanced technologies to enhance the efficiency of the power grid.

In the report, AEP outlines a business strategy that will lead to reductions in carbon dioxide emissions from its power plants of 60 percent from 2000 levels by 2030 and 80 percent from 2000 levels by 2050.

AEP expects to achieve its carbon dioxide emission reductions through a variety of actions including investments in renewable generation and advanced technologies; investment in transmission and distribution systems to enhance efficiency; increased use of natural gas generation; and expanded demand response and energy efficiency programs.

“AEP is focused on modernizing the power grid, expanding renewable energy resources and delivering cost-effective, reliable energy to our customers,” said Nicholas K. Akins, AEP chairman, president and chief executive officer. “Our customers want us to partner with them to provide cleaner energy and new technologies, while continuing to provide reliable, affordable energy. Our investors want us to protect their investment in our company, deliver attractive returns and manage climate-related risk. This long-term strategy allows us to do both.”

AEP’s resource plans include adding 3,065 megawatts (MW) of solar generation and 5,295 MW of wind generation to the portfolio serving its regulated utility customers by 2030. AEP’s largest planned renewable energy investment is the $4.5 billion, 2,000-megawatt Wind Catcher Energy Connection project in Oklahoma. If approved, Wind Catcher will be the largest contiguous wind farm in the U.S. and will deliver nearly 9 million megawatt-hours of low-cost wind energy annually to AEP customers in Oklahoma, Arkansas, Louisiana and Texas. Wind Catcher approval would accelerate how quickly AEP can add new wind generation to its portfolio.

AEP also is investing in renewable energy in competitive markets. Between 2018 and 2020, the company plans to invest approximately $1.2 billion in contracted renewables and renewables integrated with energy storage.

To enhance the efficiency and resiliency of the energy delivery system, AEP’s strategy includes plans to invest nearly $13 billion over the next three years in its transmission and distribution system.

AEP has factored future carbon regulations into the company’s evaluation of generation resource options for many years and will continue to do so. The company already has cut its carbon dioxide emissions by 44 percent since 2000.

AEP’s generation capacity has gone from 70 percent coal-fueled in 2005 to 47 percent today. Its natural gas capacity increased from 19 percent in 2005 to 27 percent today, and its renewable generation capacity has increased from 4 percent in 2005 to 13 percent today.

“This transition to a more balanced resource portfolio will help mitigate risk for our customers and shareholders alike and ensure a more resilient and reliable energy system into the future,” Akins said.

AEP’s Strategic Vision for a Clean Energy Future 2018 report complements the integrated Corporate Accountability Report that AEP has produced for the last 11 years to provide a comprehensive view of the company’s performance on key financial, environmental, social, governance and sustainability issues that are important to shareholders, customers and other stakeholders. Additionally, AEP helped lead the steering committee for Edison Electric Institute’s ESG/sustainability reporting effort, a voluntary electric industry initiative to help provide industry investors with more uniform and consistent environmental, social, governance, and sustainability-related (ESG/sustainability) metrics.