January 21, 2021

DealBook: Tesla’s Struggles Raise Questions About Electric Cars

A branch of Banco Santander in Mexico City in 2010.Susana Gonzalez/Bloomberg NewsA branch of Banco Santander in Mexico City in 2010.

As Tesla Motors, a maker of electric cars, burns through cash and misses production targets, it is turning to investors and taxpayers for extra financial help.

On Tuesday, Tesla announced plans to sell five million shares to raise cash. The federal government agreed earlier to waive some conditions of a $465 million loan, easing pressure on the company over the next couple of quarters. The moves raised questions about the long-term viability of the company.

In recent months, Tesla has been ramping up production of its main vehicle, a high-performance sedan called the Model S that goes from zero to 60 miles per hour in 4.4 seconds. Tesla has started rolling out the first cars, but was four to five weeks behind on delivering the vehicles to customers. In the meantime, it is consuming cash at a rapid rate and cut its revenue forecast on Tuesday.

“Tesla’s story is starting to show some serious cracks,” said Carter Driscoll, an analyst at CapStone Investments. “This shows that capital raising is a necessity, not a luxury, as the company had maintained.”

Tesla’s problems could also spark criticism of the government’s energy loan program, which has been heavily promoted by the Obama administration. The program came under fire after Solyndra, a solar-panel maker, collapsed in 2011 owing taxpayers $535 million.

In Tesla’s case, the moves suggested that cash was getting tight.

Under the new terms of the loan, Tesla received extra time to make a future payment, and will not have to pass a test this quarter that compares short-term assets with short-term liabilities.

But the Energy Department extracted a concession that by the end of October, Tesla must submit a plan for early repayment of the loan.

Deepak Ahuja, Tesla’s chief financial officer, said the changes to the loan were “purely a normal course of events” because Tesla’s business model had evolved.

Tesla is now entering a critical phase. The company has fully drawn down the government loan, and shareholders may not be happy with additional stock offerings. Its share price fell $3, or 10 percent on Tuesday, to $27.66 a share, down from a 12-month high of $38.01 in April.

Amid the financial pressure, investors will look for signs that sales of the Model S will lead to strong cash flows.

Mr. Ahuja said that he expected Tesla’s operations to produce positive cash flows soon. In the first six months of this year, Tesla showed a cash drain of $111 million.

Mr. Driscoll, the Capstone analyst, asked: “When do people start to question their ability to execute?”

Tesla will also test customers’ loyalties. Some early customers who have received their Model S cars are extremely pleased. Rob Stelling, a clinical laboratory scientist in St. Helena, Calif., who got car his earlier this month, said it had exceeded his expectations.

“I give more than 10 rides a day,” Mr. Stelling said. “I think I’ve sold at least five.”

Buyers are paying a hefty sum to reserve the Model S. The deposit on the basic model, which sells for about $57,400 before tax credits, is $5,000. Souped-up versions require larger deposits.

Such payments have been a big source of cash for the company. At the end of June, Tesla was holding $133.4 million of reservation payments. But if production delays worsen, customers may question the wisdom of making substantial reservation payments to Tesla.

“I wish Tesla could meet the production target, because it’s better for the company,” said John Griswell, a computer engineer from Austin, Tex., who put down $5,000 for a Model S but had not yet received it. “But it’s also important that they get the product right.”

In the end, Tesla’s fortunes will depend on the size of the market beyond the enthusiastic early buyers.

“People are going to want these cars because they’re great,” Mr. Griswell said.

Article source: http://dealbook.nytimes.com/2012/09/25/questions-about-electric-cars-as-a-manufacturer-struggles/?partner=rss&emc=rss

Wheeling and Dealing

But their cooperation will be put to the test as the sides square off over how to divide the profits of Detroit’s unexpectedly swift revival.

After a period of plunging sales, bankruptcies and government bailouts, the union is hoping to regain some of its lost jobs, reopen closed factories, and increase the pay of its 111,000 members, some of whom are being paid half as much for entry-level jobs as other workers under a two-tier wage arrangement.

But those goals run against the priorities of Detroit’s Big Three automakers, who want to hold the line on costs and further close the gap in productivity with foreign-owned factories in the United States, which employ much cheaper nonunion workers.

And while contract negotiations are always prickly, this round has a particularly prominent backdrop: the long shadow of the Obama administration, which bailed out both General Motors and Chrysler and shepherded the automakers through Chapter 11.

As part of the bailouts, the U.A.W. agreed to no-strike clauses at both companies and to submit to arbitration in the event that a contract could not be reached.

That leaves Ford, the most successful of the three, as the only possible strike target should the talks fall apart. But the U.A.W. benefited greatly from the federal intervention, and Ford has been hailed by consumers for surviving the recession without financial help from taxpayers.

For the union to strike Ford or enter a contentious arbitration process could reignite debate over the bailouts and prove politically embarrassing to President Obama as he readies next year’s re-election campaign.

Bob King, the union’s president, said in an interview that he was “morally and legally” bound to get the best deal possible for his membership, regardless of the political consequences. “But if we end up with a strike or arbitration,” he acknowledged, “I’d feel like I failed in many ways.”

The union’s four-year contracts with G.M., Ford and Chrysler expire in mid-September. Indications are that the U.A.W. will be aggressively seeking better profit-sharing, job guarantees, and wage increases for lower-paid, entry-level workers.

“Our members have sacrificed a lot,” Mr. King said. “We’re trying to figure out a path that gives members more income but doesn’t disadvantage the companies.”

All three automakers are making money and expanding sales. But they are loath to do anything that hurts their newfound competitiveness or adds costs to their streamlined manufacturing operations. The Big Three earned nearly $6 billion in combined profits during the first quarter of this year, and paid sizable profit-sharing checks this spring based on their 2010 results.

“We all know that there are things we can’t do to go back to how we were,” said Cathy Clegg, head of G.M. labor relations, during an appearance Monday at a truck plant in Flint, Mich. “We need to see a pretty healthy market recovery before we start turning factories back on.”

All three companies have drastically cut production and jobs in recent years to better match their smaller market shares. The U.A.W. currently has less than half the number of employees at G.M., Ford and Chrysler than just five years ago.

The pain of losing so many jobs is still fresh in the minds of the surviving workers, said Mr. King, who was elected president last year after previously running the U.A.W.’s Ford division.

“They want stability,” he said. “They want to know they’ll be working next week and next year, and that they will be able to send their kids to college.”

But while preserving jobs is paramount, Mr. King said that workers deserved a bigger share of the economic benefits of Detroit’s turnaround.

While Mr. King does not expect across-the-board wage increases, he said the automakers should improve their profit-sharing formulas, something some auto executives have indicated a willingness to consider. He added that new entry-level workers, who are paid about $15 an hour compared with $28 for regular U.A.W. members, deserve pay increases in the new contract.

“I don’t think you should be working in the auto industry at poverty-level wages when the companies are doing well,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=fdf7a65247c28951a4e15aea9744906f

Bucks: Planning for Retirement While Helping Out the Children

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No wonder retirement planning is getting more complex. Many older Americans’ sense of financial security remains rattled by the recession, and now many of them expect to have to help other family members financially, including adult children, after they retire.

Those are some findings of the SunAmerica Retirement Re-Set Study, a telephone survey conducted in April by Harris Interactive on behalf of SunAmerica Financial Group and Age Wave, which track aging trends. The survey questioned 1,001 people aged 55 and older about their views on retirement and financial security.

Half of those surveyed said they expected to have to balance their own retirement plans with the expectation of providing financial help to family members. And in turn, 70 percent of those who said they would have to help relatives indicated they would need to help adult children, specifically.

“The last few years have left a large chunk of the population in a tighter situation than they’d like to be in,” says Ken Dychtwald, chief executive of Age Wave. “So if they need help making payments on a home, or have kids in college, people are turning to the bank of mom and dad.”

The need to provide additional support can complicate one’s retirement savings calculations, he says. Previously, the biggest wild cards in retirement savings were how long you might live and unanticipated health costs, like a nursing home. “That hasn’t changed,” he said. “But now you have to add to it the cost of having to help other members of your family.”

In an initial version of the survey conducted 10 years ago, most people surveyed expected to retire at age 64, but this year’s survey finds that expectation is age 69; people expect to work longer to replenish their nest eggs, and they also say they consider some work fulfilling. (That change is already showing up in employment data, the study notes: 16 percent of those over 65 are now employed, compared with less than 13 percent in 2001.)

Do you expect you will have to help other family members, like adult children, financially in retirement? How is that affecting your plans for retirement savings?

Article source: http://feeds.nytimes.com/click.phdo?i=9451a3be84d294d6f8a7d757978237a6