Now, the Good News for Tesla

Analysis of the Losses-Revenues Data A New Measure of Profitability (MPR & MCR)

Above: Elon Musk, co-founder of Space X and Tesla Motors speaking at Caltech, during the commencement ceremony at Pasadena, CA on June 15, 2012. Below: Teslas Model S being driven near its factory at Freemont, CA on June 22, 2012. Musk has disputed the claims made in a New York Times article (by John Broder) on February 8, 2013, that the Model S performed poorly during a cold weather test drive between Washington DC to Boston.
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Table of Contents
No.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Topic
Summary Introduction Break-even Model for Profitability Quarterly Profits (Loss)-Revenues and Breakeven Point SpaceX and Tesla: My Facebook Post on Feb 26, 2013 Appendix 1: Annual Profits (Loss)- Revenues 2007-2012 Appendix 2: Tesla Motors: The Power of Calculus References cited and related articles About the author Two relevant articles on Tesla reproduced

Page No.
3 4 5 8 13 15 24 28 33 35

The Space Exploration Technologies, or SpaceX, Dragon spacecraft with solar array fairings attached, stands inside a processing hangar at Cape Canaveral Air Force Station, Fla. The spacecraft will launch on the upcoming SpaceX CRS-2 mission. http://news.yahoo.com/photos/spacex-fires-private-rocket-fridaylaunch-space-station-photo-120354380.html The rocket was successfully fired in a pre-launch test (on Feb 25, 2013, 1:30 PM) ahead of the Friday launch (Mar 1, 2013) to carry supplies and scientific experiments to the International Space Station.
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 1. Summary
The profits (loss)-revenues data for Tesla Motors, Inc. for the eleven consecutive quarters ending Dec 31, 2012 is analyzed here using the classical breakeven model for profitability of a company making and selling N units of a single product. This can be shown to lead to the remarkably simple linear law y = hx + c = h(x x0), relating revenues x and profits y. The slope h is the rate of increase of profits with increasing revenues, i.e., h = y/x where x and y are the changes in revenues and profits (or loss) between any two quarters of interest. The intercept c is nonzero and can be shown to be related to the fixed costs. The slope h here is similar to the marginal tax rate encountered in tax law. Hence, we will refer to h as the MPR, the marginal increase of profits with increasing revenues. Although Tesla Motors has not reported a quarterly, or yearly, profit to date, a careful analysis of the income statements reveal reducing losses with increasing revenues. This is equivalent, at least mathematically speaking, to increasing profits with increasing revenues. This is demonstrated here using a simple x-y diagram of profits (or loss) y versus revenues x. The slope h of this profits (loss)-revenues graph, rather than the profit margin (the ratio y/x), the conventional measure of profitability, is much more meaningful for a company like Tesla Motors. Extraordinarily high slopes h in the law relating profits (loss) and revenues observed. The MPR values of h = 2.53 and h = 6.43 are deduced which indicates a very high rate of conversion of additional revenues into profits (or loss reduction) as revenues increase. A significant improvement in the cost structure between 2010 and 2012 is also revealed if we consider the C-R (Costs-Revenues) graph. The C-R equation is of the type C = mR + k where the slope m of the graph is a measure of the MCR, the (marginal) rate of increase of costs with increasing revenues. For 2012, the data reveals m = 0.944 < 1 whereas for 2010 and 2011 the data shows that m > 1. Hence, the future profitability of Tesla Motors appears to be promising. (Disclosure: The author has currently no financial interests in Tesla.)
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 2. Introduction
After engaging in what seemed like a lawyerly exchange about what a New York Times reporter did or did not do, during that infamous test drive on a cold wintery day, from Washington DC to Boston, the CEO of Tesla Motors Elon Musk, has now acknowledged that the negative NYT report has, nonetheless, hurt the companys image and sales. Tesla stands to lose as much as $100 million due to canceled orders, Ref. [1,2]. As an engineer with advanced degrees, and as one who has spent all of his professional career in the R & D environment, including the automotive industry, and especially as someone who has struggled through all the hurdles to be overcome to take a concept from the R & D stage all the way to commercialization (at the old pre-bankruptcy General Motors R & D Labs) nothing would make me happier than to see Tesla Motors succeed. However, one of the comments to the article noted above says it all and is reproduced below. What the Times test does illustrate is how much external variables will affect your range. If its too cold, if you use the heater, air conditioner, radio, if you drive too fast or too slow, your range will be truncated. Yes, a gasoline engine will see a shorter range if you drive fast but your range won't drop in half. .. This is a good summary of what happens with a vehicle in the real world. This is what happened when the NYT reporter, John Broder, did his test drive. Many potential customers could identify with this reality. Hence, the canceled orders and the loss of revenues, estimated at as much as $100 million (1000 vehicles at an average price of $100,000 per unit). Nonetheless, Teslas goal was to deliver 20,000 vehicles in 2013 and reach the production goal of 500 vehicles per week, which translates to 6000 per quarter, see Ref. [3]. The company delivered a total of 2,650 vehicles to customers last year, including 2,400 in the fourth quarter. The delivery goal for the first quarter of 2013 is 4,500. We will now briefly review the classical breakeven analysis for the profitability of a company and then use it as the basis for analyzing the available financial data for Tesla Motors. The data compiled in Table 1 was obtained from the quarterly and annual shareholder letters, see links given with the reference list.
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Table 1: Profits (Loss)-Revenues Data for Tesla Motors

Quarter Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Quarter Ending 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 Revenues, x (millions) 28.41 31.24 36.29 49.03 58.17 57.67 39.38 30.17 26.65 50.10 306.33 Profits (Loss), y (millions) -38.52 -34.94 -51.36 -48.94 -58.90 -65.08 -81.49 -89.87 -105.60 -110.80 -89.93

Source: Quarterly Shareholder Letters of Tesla Motors.

3. Breakeven Model for Profitability

Consider a company (such as Tesla Motors) making and selling N units of a single product (in this case the Model S). The total revenues R realized from the sales is R = pN where p is the unit price. The total costs C associated with the production and sale of these N units is the sum of the fixed costs a and the variable costs bN where b is the unit variable cost. The total cost C = a + bN = a + (b/p) R since N = R/p. Hence, the costs-revenues graph is a straight line with slope (b/p) and a positive intercept equal to the fixed cost a. Since Profits = (Revenues Costs) for all companies, it follows that the profits P = (R C) = pN a bN = (p b)N a. Using N = R/p, this can also be rewritten as P = [(p b)/p] R a. This means that profits will increase as revenues increase following a simple linear law. The slope h = (p b)/p = 1 (b/p) is determined by the ratio of the unit variable cost b and the unit price p. The intercept is nonzero, because of the fixed costs a. Instead of these descriptive symbols, we
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will now rewrite the profits-revenues law as y = hx + c where x is revenues and y is the profits (or loss, if a negative value). Profits revenues law y = hx + c = h(x x0) ..(1)

Slope h = 1 (b/p) related to unit variable cost b and unit price p ..(2) Intercept c = - a negative of the fixed costs Breakeven revenue x0 = - c/h = ap/(p b) ..(3) ..(4)

Notice also that profits will go to zero at a finite revenue, given by equation 4 above. This breakeven revenue, denoted as x0, can be determined by preparing the x-y graph and extrapolating to determine where the graph cuts the revenues axis. The breakeven revenue depends on the triplet (a, b, p) which determine the fundamental cost and revenue factors for the company. Although a simple company with a single product line has been considered here, it can be shown that the same model also applies when we consider much bigger and larger companies with many products and hence multiple revenue streams. Several articles discussing this methodology may be found at this website. Some key references have been included at the end of this article. Finally, it should be noted that the slope h represents the rate of increase of profits with increasing revenues and is similar to the notion of the marginal tax rate encountered in tax law. Hence, we will refer to h as the MPR, the marginal rate of increase of profits with increasing revenues. The MPR is obviously very different from the familiar profit margin, which is the ratio y/x. Profit Margin, y/x = h + (c/x) ..(5)

The profit margin y/x = h = MPR if and only if the intercept c = - a = 0. Since the fixed cost is NEVER equal to zero, it follows that the profit margin will vary in a complex (and often confusing) manner as the revenues increase or decrease, depending on the numerical values of h and c. Both positive and negative values of
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h are observed in practice and empirical observations also reveal positive and negative values c (although fixed cost a = - c, means c must always be negative). The empirical observation of both positive and negative values of c is related to real world complex systems which will involve an averaging of the revenues and the costs over several product streams. We will now discuss the actual financial data for Tesla Motors.
Tesla Motors, Inc. Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)

Image of the relevant section from page 12 of the Form 8-K filed on 2/20/13 by Tesla Motors, Inc. Of immediate interest to us are the two line times indicated by the arrows. The line item Total revenues is what is meant by reveneus R in the following analysis. The line item Net loss is what is meant by profits (losses), P in the following analysis. Thus, we apply the basic statement of finance to these two line items to determine the Total Costs C as discussed here. This total costs C thus includes the line item called cost of revenues and all of the line items under Operating Expenses, which includes provisions for income taxes. Thus we can determine the breakeven point, using the classical breakeven model for the profitabillity of a company making and selling N units of single product (such the Tesla Model S here). Profits = (Revenues Costs) P = R C = [1 (b/p)]R - a Costs = Revenues - Profits C = R P = (b/p) R + a
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 4. Profits (Loss)-Revenues Diagram and Breakeven Point

Although revenues increased phenomenally in the fourth quarter of 2012 Tesla was not able to report a profit because of greatly increased costs associated with the manufacturing process, see Ref. [2]. However, if we overlook this one exception data point, we see a remarkable trend when the data is presented graphically in the form of a profits (loss)-revenues diagram, see Figure 1.

Revenues, x [millions]
0.0 0.0 -20.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0

Profits, y [millions]

-40.0 -60.0

-80.0
-100.0 -120.0

Figure 1: The profits-revenues diagram for Tesla Motors, Inc. for Q2 2010 to Q4 2012. Although the term profits is used, it is understood that we are dealing with losses from the ve values on the graph. The data point for Q4 2012 is outside the scale of this graph.

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40.0 20.0

Revenues, x [millions]
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0

Profits, y [millions]

0.0 -20.0 -40.0 -60.0 -80.0 -100.0 -120.0 -140.0

A
y = hx = c y = 2.532x 173.1

Figure 2: The profits-revenues diagram for Tesla Motors, Inc. for Q2 2010 to Q4 2012. The straight line labeled A passes through the data points for Q2 2012 (26.65, -105.60) and Q1 2011 (49.03, -48.94). The slope h = 2.532 is very high. The equation of the line is y = 2.532x 173.07. Two other data points, Q1 2012 (30.17, -89.87) and Q4 2011 (39.38, -81.49), lie very close to this line. This means that as revenues increases, losses decreases, which is mathematically equivalent to an increase in profits. Hence, the graph has a positive slope. Extrapolation to higher revenues thus leads to the breakeven point of x0 = -c/h = 68.36, or about $70 million. This provides one estimate of the potential profitability at these low sales volumes. The cost structure will no doubt change as the number of units sold N increases in the future. Although the graph in Figure 1 reveals considerable scatter, we also observe a remarkable alignment of several data points along an upward sloping line. This means as revenues increase by an amount x, the losses decrease, i.e., y > 0. Mathematically speaking, this is equivalent to an increase in profits with increasing revenues and hence a positive slope h = y/x. For example, considering the data for quarters ending Jun 30, 2012 and Mar 31, 2011, the two extreme points on the graph, we get x = (49.03 26.65) = 22.38 and y = (-48.94 (-105.6)) = 56.66
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and hence a positive slope h = y/x = 2.532. The intercept made by this line A can be computed using c = y1 hx1 = y2 hx2. This yields c = -173.069 and hence a positive value of the breakeven revenue x0 = -c/h = 68.36. All the numbers here are in millions. The breakeven revenue, where the line A cuts the revenues axis works out to about $70 million. This is illustrated in Figure 2.

40.0 20.0

B
Revenues, x [millions]
0 10 20 30 40 50 60 70 80

Profits, y [millions]

0.0 -20.0 -40.0 -60.0 -80.0 -100.0 -120.0

-140.0

y = hx = c y = 6.434x 433.2

Figure 3: The profits-revenues diagram for Tesla Motors, Inc. for Q2 2010 to Q4 2012. The straight line labeled B passes through the data points for Q3 2012 (50.10, -1105.80) and Q2 2011 (58.17, -58.90). The slope h = 6.434 is extraordinarily high. The equation of the line is y = 6.434x 433.2. One other data points, Q3 2011 (57.67, -65.08) falls practically on this line. Again, this indicates that as revenues increases, losses decreases, or equivalently, profits increase. Hence, the graph has a positive slope. Extrapolation to higher revenues thus leads to the breakeven point of x0 = -c/h = 67.33, or again about $70 million. This provides one estimate of the potential profitability at these low sales volumes. (The virtual identity of the two x0 may be just a fortuitous coincidence.)

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Likewise, considering the data for quarters ending Sep 30, 2012 and Jun 30, 2011, the two other extreme points on the graph, we get x = (58.17 50.10) = 8.07 and y = (-58.90 (-110.80)) = 51.90 and a positive slope h = y/x = 6.434. The intercept made by this line B is computed using c = y1 hx1 = y2 hx2. This yields c = -433.16 and hence a positive value of the breakeven revenue x0 = -c/h = 67.33. The breakeven revenue, where the line B cuts the revenues axis works out to be again about $70 million. This is illustrated in Figure 3. Thus, we conclude that as Tesla gets its manufacturing and production issues under control, and as revenues increase in the future, with increase in the number of units N that are sold, the company can report a profit. Indeed, from the remarkably high values of the MPR, h = 6.43 and h = 2.53 observed here, it appears that profits will increase quite rapidly as the revenues. In conclusion, future costs and, hence profits, will ultimately depend on the critical component, the lithium-ion battery. The battery packs used in all-electric and/or hybrid vehicles are expensive, click here. Lithium (Li) is the third element in the periodic table (the first being hydrogen and the second being helium, both gases at room temperatures) and is the lightest of all known metals (click here). But, it is still a rare metal and quite expensive, more expensive than magnesium (Mg) and aluminum (Al). Lithium prices have tripled, since 2000, according to Bloomberg. Both Mg and Al have played a significant role in the development of fuel efficient and lightweight conventional gasoline-powered automobiles and also airplanes. With a curb weight of 4650 pounds (2114 kgs), the 2013 Tesla Model S is severely obese and could easily shed a lot of pounds (up to 500 lbs, or even 1000 lbs), thereby also increasing the vehicles range with no additional demands on its batterys performance. The present author has shown, see Ref. [11], that the fuel economy of a conventional gasoline powered vehicle increases with reducing vehicle weight following a simple linear law, y = ax + b, where y is the fuel economy (miles per gallon, mpg) and x is the curb weight. The numerical values of the constants a and b can be deduced from the data for several vehicles. The slope a is negative and reducing the vehicle weight by about 150 lbs improves the fuel economy by 1 mpg. The same considerations apply to an all-electric vehicle like

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the Tesla Model S. Reducing the Tesla Model S weight will greatly improving the range of the vehicle. The Boeing 787 Dreamliner, which has been much in the news lately for the wrong reasons (related to the fire risks posed by the lithium ion batteries used, several of them are used in the 787), uses advanced carbon-fiber composites for its body frame, instead of the traditional aircraft aluminum, to reduce weight and increase the fuel efficiency. Such carbon-fiber composites also find their use in the Model S and in ultra-expensive cars, known as the Supercars (e.g., Bugatti, EB 110, Pagani Zonda, Ferrari Enzo, Porsche Carrera GT, Lambroghini Reventon), click here, see Ref. [13]. The cost and development and the large scale mass production of such advanced lightweight materials (including development of the requisite supplier base) will ultimately determine the ability to ramp up production to even higher levels (example a million vehicles per year, from current goal of 20,000). These are outside the scope of the present discussion which is limited to assessing the potential profitability of Tesla by analyzing the profits (loss)-revenues data. Further improvement in the analysis and projections of future profitability are possible by quantifying the fundamental triplet (a, b, p) and arriving at numerical values of these three constants, as well as the constant h, the MPR which is related to the fundamental triplet.

Finally, as shown by the additional calculations provided in Appendix 1, in the revised document uploaded today (February 27, 2013), although Tesla motors has never reported a profits, quarterly or annual, and although costs exceed the revenues, the rate of increase of the cost with increasing revenues (MCR, analogous to the MPR) has decreased dramatically when we consider the data for consecutive quarter in 2012. This is illustrated by the C-R in Figure 6. That is, indeed, good news nay great news for Tesla Motors, Inc.
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 5. SpaceX and Tesla Motors: My Facebook Post

Dear All: For the technology enthusiasts here, a company called SpaceX successfully tested their private rocket yesterday (Feb 25, 2012) at Cape Canaveral ahead of the Friday launch (Mar 1, 2013) to carry supplies and scientific experiments to the International Space Station. Elon Musk, CEO and co-founder of SpaceX also heads Tesla Motors. The Model S is an all-electric vehicle (which uses the lithium ion battery that you can find practically everywhere now, powering the devices like cellphones, iPads, etc.). It recently got bad press after a New York Times reporter took it on a test drive from Washington DC to Boston, in cold wintery weather. The NYT reporter complained that the battery did not last as long as promised. After first defending the battery's capabilities, with lawyerly arguments, Tesla has now acknowledged that many customers on the East Coast of the US have canceled their orders. The lost sales might total $100 million (1000 vehicles, at $100, 000 each; yes the Model S averages around $100K and is NOT for the average person). The company has not reported a quarterly or annual profit since it went public in 2010. Revenues increased from $50.1 million in Q3 2012 to $306.33 million in Q4 2012. But, the company still reported a loss. In the document just uploaded, I have analyzed the financial data and suggested a new measure of profitability, called the MPR (short for the marginal rate of increase of profits with increasing revenue). The MPR is the just name I have given for the slope of the profits-revenues graph. The MPR, rather than the familiar profit margin (ratio of profits to revenues), is a much better measure of performance for a company like Tesla. A high MPR = 6.434 is observed for Tesla, which means that losses decrease at a very high rate as the revenues increase. So, if Tesla can repair its image and ramp up sales, its current "cost structure" provides the ability to become profitable in the near future. The company's goal was to become profitable in Q1 2013. Not much time left for that.
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May be Q2 2013 for sure. ...... Remember, Tesla has a recession-proof business model. It relies on RICH customers who spend money like most ordinary folks spend on their luxuries like movies, entertainment etc. But, they are looking for "value" for their money. The car must deliver the promised range without inconveniencing the customer. The battery must charge and hold charge as promised. Performance and customer satisfaction is all that Tesla must focus on. When sales revenues increase, profits will follow. And, please Mr. Musk, no more disputes with dissatisfied customers. That is not a good idea. I want you to succeed. The company has already provided good jobs for many average folks. They were also forced to work overtime (up 70 hours a week last year) as production hiccups were being smoothed out. Tesla and SpaceX, to me, embody the American spirit. Looking forward to the successful launch on Friday, March 1, 2013. http://www.scribd.com/doc/127436107/Tesla-Motors-Profits-Losses-RevenuesAnalysis-and-a-New-Measure-of-Profitability-MPR

Very sincerely V. Laxmanan February 26, 2013 (around 4:55 PM) ******************************************************************

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 6. Appendix 1 Annual Profits-Revenues Data (2007-2012) for Tesla and the Cumulative Quarterly Profits-Revenues Data
The annualized values (as well as quarterly values) of the revenues and the profits (losses) for Tesla Motors can be found in the companys filings with the United States Securities and Exchange Commission and also with other sources cited in Refs. [13-16]. This data has been compiled here in Table 2. The revenues in the second column is the item called total revenues in the Consolidated Financial Data. The profits (loss) is the item called Net loss (profit) which appears just before profits (losses) per share are computed. The last column represents the total costs C, as defined here to develop the breakeven analysis. This is the difference of revenues and profits. Since profits are negative, the costs in the last column are seen to be consistently higher than the revenues. Thus, considering this annual data, Tesla Motors appears to be far removed from its goal of becoming profitable in Q1 2013 or even the full year. Nonetheless we see a remarkably nice and linear relationship between revenues and costs and also revenues and profits. This is illustrated in Figures 4 and 5. Also, a similar analysis of the quarterly data (Table 3) reveals some good news.

Table 2: Profits (Loss)-Revenues Data for Tesla Motors

Revenues, x Profits (Loss), y Costs C = (R P) (millions) (millions) (millions) 2007 0.073 -78.157 78.230 2008 14.742 -82.782 97.524 2009 111.943 -55.740 167.683 2010 116.744 -154.328 271.072 2011 204.242 -254.411 458.653 2012 413.256 -396.213 809.469 Note: Since Profits = Revenues Costs, we can deduce the values given in the last column from the revenues and profits (loss) reported. This is NOT the same as the item cost of revenue mentioned in the financial statements. Rather the values represent TOTAL COSTS as defined here to develop the breakeven analysis. Year
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900.0

Costs, C = (x y), [millions]

800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 0.0

Operating line C = mR + k = 1.77 + 78.1

Breakeven line R = C Slope m = 1, k = 0

100.0 200.0 300.0 400.0 500.0

Revenues, x [millions]
Figure 4: The Costs-Revenues diagram for Tesla Motors, Inc. for 2007-2012, deduced from the consolidated financial data from the various SEC filings. The total costs C = Revenues Profits, as defined here to develop the breakeven analysis. With the exception of the data for 2009, all the other data points can be seen fall on a remarkably perfect straight line. The equation of the operating line is thus C = mR +k, where the slope m = 1.77 and k = 78.1 with all values being in millions. The slope m was fixed by considering the two extreme points, the data for 2007 and 2012. The red line, with the equation C = R, with slope m = 1 and intercept k = 0 is the breakeven line. The total cost C is exactly equal to the revenues R as we move up this line. Tesla Motors must deviate from its present operating line and approach the line C = R in order to become profitable. The slope m = 1.76 is a numerical measure of how fast costs are increasing with increasing revenues and may be called the MCR (marginal cost with increasing revenues). The annualized profits-revenues graph is a mirror image of this graph. The mathematical equation y = hx + c relates profits y and revenues x with the slope h = (1 m) and the intercept c = - k.
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Revenues, x [millions]
0.0 0.0 100.0 200.0 300.0 400.0 500.0

Profits, y [millions]

-100.0

-200.0

Operating line y = hx + c = -0.77 - 78.1 h = (1 m), c = - k

-300.0

-400.0

-500.0

Figure 5: The annualized Profits-Revenues diagram for Tesla Motors, Inc. for 2007-2012, deduced from the consolidated financial data from the various SEC filings. Again, we see a remarkably linear relation, with the 2009 data point being an exception with lower losses. Since Profits = Revenues Costs, it follows that the slope h = (1 m) and the intercept c = - k. Tesla must start deviating from this downward sloping line and the slope h must become positive (as with the quarterly data). A study of the financial data for several companies indicates exactly similar trends. Google and Southwest Airlines, for example, see references cited, revealed a negative slope h as we see here before they turned the corner and became profitable. With both Google and Southwest Airlines, the turned around happened after two full fiscal years. Tesla became a public company in 2010 and so a turnaround in 2013 would be consistent with the trends observed with other successful companies. The quarterly data from Table 1 can be analyzed in an exactly similar manner. The following numerical values for the constants m and k in the equation, C = mR + k,
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can be deduced after examining the C-R plot. This also reveals a remarkable linearity as we see in Figure 4 for the annual data.

Table 3: Quarterly Costs-Revenues Data for Tesla Motors

Quarter ended 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 Revenues, x Profits (Loss), y Costs C = (R P) (millions) (millions) (millions) 30.17 -89.87 120.04 26.65 -105.60 132.25 50.10 -110.80 160.91 306.33 -89.93 396.26 The C-R equation for 2012 is C = 0.944R + 107.093 49.03 -48.94 58.17 -58.90 57.67 -65.08 39.38 -81.49 The C-R equation for 2011 is C = 2.869R - 42.69 97.97 117.07 122.75 120.86

31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11

28.41 -38.52 66.93 31.24 -34.94 66.18 36.29 -51.36 87.65 The C-R equation for 2011 is C = 2.629R - 7.772 Note: Since Profits = Revenues Costs, we can deduce the values given in the last column from the revenues and profits (loss) reported. This is NOT the same as the item cost of revenue mentioned in the financial statements. Rather the values represent TOTAL COSTS as defined here to develop the breakeven analysis. Although the company has not reported a profit to date, and costs are greater than revenues, for 2012, the slope m = C/R = 0.944 < 1. This implies that costs are rising (C > 0) at a lower rate than the increase in the revenues (R > 0). Also, the slope m > 1 for 2010 and 2011. Hence, the cost structure for Tesla has already improved in 2012. This is also evident from the dramatic change in the slope of the graph of cumulative revenues and cumulative costs for 2012, see Figure 6. We do not see the same change in 2011, see Figure 7.

30-Jun-10 30-Sep-10 31-Dec-10

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Table 4: Cumulative Quarterly Costs-Revenues Tesla Motors for Data 2012

Cumulative Cumulative Profits Cumulative Costs Revenues, x (Loss), y (millions) C = (R P) (millions) (millions) 31-Mar-12 30.17 -89.87 120.04 30-Jun-12 56.82 -195.47 252.29 30-Sep-12 106.92 -216.40 413.20 31-Dec-12 413.25 -200.74 809.46 Cumulative values are the 3-month, 6-month, 9-month and the full year values
900.00

Quarter ended

Cumulative Costs, C [millions]

800.00 700.00 600.00 500.00 400.00

300.00
200.00 100.00 0.00 0.00

The slope m = C/R = 4.96, 3.21 and 1.29 has decreased between consecutive quarters in 2012.
100.00 200.00 300.00 400.00 500.00

Cumulative Revenues, R [millions]

Figure 6: The dramatic change in the slope of the cumulative costs versus cumulative revenues in 2012 for Tesla Motors, Inc. The rate of increase of costs, as measured by the slope of the graph has decreased.

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Table 5: Cumulative Quarterly Costs-Revenues Tesla Motors for Data 2011

Cumulative Cumulative Profits Cumulative Costs Revenues, x (Loss), y (millions) C = (R P) (millions) (millions) 31-Mar-11 49.03 -48.94 97.97 30-Jun-11 107.20 -107.84 215.05 30-Sep-11 164.87 -172.92 337.79 31-Dec-11 204.24 -254.41 458.65 Cumulative values are the 3-month, 6-month, 9-month and the full year values Quarter ended

600.0

Cumulative Costs, C [millions]

500.0

400.0

The slope m = C/R = 2.32 is essentially constant between consecutive quarters in 2011.

300.0

200.0

100.0

0.0 0.0 50.0 100.0 150.0 200.0 250.0

Cumulative Revenues, R [millions]

Figure 7: The cumulative costs were increasing at an essentially fixed rate with increasing revenues during 2011. The straight line C = 2.324R 15.97 joins the two extreme points and has a slope m = 2.324. (A best-fit equation can be developed but this seems unnecessary at this point.)
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Table 6: Cumulative Profits (Losses), Revenues and Costs (2Q2010 to 4Q2012)

Quarter ending
30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12

Revenues R or x (millions)
28.41 31.24 36.29 49.03 58.17 57.67 39.38 30.17 26.65 50.10 306.33

Profits P or y (millions)
-38.52 -34.94 -51.36 -48.94 -58.90 -65.08 -81.49 -89.87 -105.60 -110.80 -89.93

Costs C = (xy) millions

66.93 66.18 87.65 97.97 117.07 122.75 120.86 120.04 132.25 160.91 396.26

Cumulative Revenues
28.41 59.65 95.94 144.97 203.141 260.807 300.182 330.349 356.999 407.103 713.435

Cumulative Profits
-38.52 -73.46 -124.82 -173.761 -232.664 -297.744 -379.232 -469.105 -574.705 -685.509 -775.441

Cumulative Costs
66.93 133.11 220.76 318.73 435.81 558.55 679.41 799.45 931.70 1092.61 1488.88

Table 6 provides the cumulative revenues, profits (losses), and costs for all of the eleven quarters starting 2Q 2010 and ending 4Q2012. It is interesting to note that the cumulative total of the revenues, $713.435 million, is less than cumulative total of the negative profits (losses) which equal $775.441 million. The difference is the cumulative total costs, $1488.88 million. We will now considering the relationship between these cumulative values.

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2500

Cumulative Costs, C [millions]

2000

C = mR + k slope m = C/R = 1.29 C = 1.294R + 565.99

1500

1000

500

C = mR + k slope m = C/R = 2.11 C = 2.111R + 6.95

0 100 200 300 400 500 600 700 800 900 1000

Cumulative Revenues, R [millions]

Figure 8: The cumulative costs and revenues for all eleven quarterly beginning with quarter ended 30 June 2010. The cumulative revenues had increased to $330.349 million for Q1 2012 (instead of starting with $30.17 in Table 4) and to $713.435 million for Q4 2012 (instead of $413.25 million). Between Q2 2010 and Q2 2011(quarter no, 5 in this cumulative reckoning), costs were increasing at an essentially fixed rate with increasing revenues during 2011. The straight line C = 2.111R + 6.95 joins the Q2 2010 and Q2 2011 data points. Extrapolating from this line gets us almost exactly to the cumulative revenues reported at the end of Q4 2012. There was an acceleration in the rate of increase of costs after Q2 2010 and then a dramatic slowing down of the rate between Q3 2012 and Q4 2012, as shown by the solid straight line with the equation C = 1.294R + 565.99. (Best-fit equation can be developed instead of the dashed line but this seems unnecessary.) The fact that Tesla has moved back to the same operating line the dashed line indicates that there is an underlying cost structure that can be analyzed using,
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perhaps, a nonlinear model, see http://www.scribd.com/doc/127767159/TeslaMotors-Nonlinear-Model-for-Profitability-Analysis. This is also confirmed by cumulative profits versus cumulative revenues graph.

Cumulative Revenues, R [millions]

0

Cumulative Profit, P [millions]

0 -200

200

400

600

800

1000

Q2 2011

-400

P = hR + c slope h = (1- m), c = - k P = - 1.11R 6.95 Q4 2012

-600

Q3 2012
-800

-1000

Figure 9: The cumulative profits (losses) versus cumulative revenues for all eleven quarterly beginning with quarter ended 30 June 2010. Tesla operating along the solid line, with a negative slope, between Q2 2010 and Q2 2011. The equation of this line is P = -1.11R 6.95, determined using the two end points. Then losses started increasing at a higher rate until Q3 2012 and then abruptly slowed to the lower rate indicated by the two dashes lines. The Q4 2012 data falls practically on the original operating line. This nonlinear behavior is discussed in more detail in the companion article to arrive at an estimate for the breakeven revenues.

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 7. Appendix 2 Tesla Motors Inc. : The Power of Calculus

My Facebook Post on February 27, 2013 (~12:35 PM)
Dear All: Sometime back I had noted, in response to another post, that Newton had to invent a new field of mathematics called calculus before he could develop his theory of gravitation. Indeed, what we now call science, especially physics and chemistry, and the advances made in these fields would NOT be possible without calculus. The key concept introduced in calculus is the rate of change. The speed of a car, or its velocity, v, is the rate of change of distance s with respect to time t, not the ratio s/t. Mathematically v = ds/dt, not s/t, where ds, as we learn on the first day in our calculus class, is the small additional distance traveled in a small additional time called dt. If the car is traveling at 60 mph, it means that it will travel 1 mile in 1 minute (a mile a minute). The ratio s/t is an average, not the speed, or rate of change. The same goes for acceleration a = dv/dt. This is the change in speed, or change in velocity, dv, in the small time, dt. This is what you have to do merge into a highway from the entrance ramp, or to overtake another car. You have to increase your speed in a very short time to avoid getting into an accident with another fast moving car(s). Without understanding meaning of the rate of change, one cannot understand physics or chemistry. Biology? May be! Economics and finances? You can literally commit murder here using ratios and never have to think about rate of change and no one will ever know about all the dead bodies that you left body because you never thought about the difference between y/x and dy/dx. Now, here's an interesting reason to think about rate of change, as it applies to financial data. After a recent, highly public, dispute involving the all-electric Tesla
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Model S, I got interested in looking at the all-electric vehicles and their performance again. I also started studying Teslas financial data. Heres what I found about the financial situation with Tesla Motors Inc. --- a true American car company that went public in 2010, the first one to do so after Ford Motor company went public in the 1950s. In yesterdays post I had called attention to the test-firing of rockets by SpaceX, ahead of the launch on Friday (March 1, 2013). This is a private company which will now take supplies and (equipment for scientific experiments) to the International Space Station. NASA's space shuttle, and its Russian counterpart, were the only methods of reaching the ISS so far. Now SpaceX will introduce American free enterprise into this equation. The CEO and co-founder of SpaceX, Elon Musk, is also the CEO and co-founder of Tesla Motors Inc. which is marketing the all-electric Tesla Model S. The 2013 Model S Tesla (tested by Car and Driver, recently) has a price tag of almost $100,000. This electric vehicle is not for the average Joe Blow out there -- at least not yet. Tesla and its CEO recently got into a public dispute with a New York Times reporter who drove the car from Washington DC to Boston and then published a NEGATIVE report saying the battery (lithium-ion, the only source of power) did not perform well and the trip had to be aborted. The test drive was also conducted in cold wintery weather, which would greatly reduce the range of the vehicle. Anyway, the negative publicity has hurt Tesla and Musk has now acknowledged that several customers had canceled their orders -- which will mean a loss of $100 million in revenues (1000 vehicles at $100,000 each). Tesla had earlier reported that they will turn the corner and become profitable in the first quarter of 2013. Tesla has NOT yet reported a profit, since it became a public company in 2010. Now, back to calculus and rate of change. Heres the interesting thing I found out. Although Tesla has not reported a profit, and although its costs have increased even as its revenues increased (more than 500% between third and fourth quarter 2012), I find that dC/dR, the rate of
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increase of cost with increasing revenues is actually decreasing. This is most dramatic in 4th quarter of 2012 when the company's revenues literally exploded, increasing from about $50 million to more than $300 million. Is this idea of dC/dR new? Not really. In economics, we deal with concepts like marginal tax rate, marginal cost, marginal profits, marginal revenues. But, other than an academic discussion, I have yet to see it being applied CONSISTENTLY to financial data. Wall Street has never done it. All you see Wall Street talking about is profit margins and earnings per share. Both are ratios which have nothing to do with the rate of increase of profits with increasing revenues. In physics, we can make successful predictions about where a moving body will be in the next hour, next day, next week, or even next minute, etc. by considering the rate change and the direction of the velocity. This is why scientists could tell us that the asteroid will NOT collide with the earth (never mind, another meteorite came a few hours before and no one knew!). The rate of change calculations is also the reason SpaceX will successfully launch its rocket on Friday. if SpaceX did calculations of s/t instead of ds/dt, and then took averages of s/t, the rocket will end up in your backyard instead of heading towards the ISS! Unfortunately, that is what Wall Streeters do every day to provide what they call earnings estimate . That is how they wreck many good companies -- remember I told you about getting away with committing murder and leaving a trail of dead bodies and getting away with it all --- this is why it happens every day on Wall Street and the guys who do it are laughing all the way to the bank as they say it! Sad, indeed, but this lack of appreciation of the need to apply the principles of calculus to financial data is a BIG BIG part of the problem we have with all the Wall Street excitements and their gloom and doom predictions. Now, we have to do, what we do with data in physics and chemistry, with financial data and economic data in a consistent manner. The Tesla Motors data, that I have analyzed and presented (see link given), is a very good example.
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Teachers and parents -- please pay attention. There is nothing in the financial data of Tesla Motors (if analyzed using conventional methods) that suggests a new potential for profitability in the near future. The company has reported losses of more than $1 billion since its operations began. The graph presented in Figure 6 (on page 18) of this document, in appendix 1, however, tells a different story. It illustrates the real meaning of the rate of change that I have going on and on with. The graph here tells us about the rate of increase of costs with increasing revenues. The changing slope (decreasing slope) of the graph means that Tesla can become profitable in the near future. You don't need to be an accountant to understand this. You just have to be a good student of calculus and understand how to determine rate of change and the derivative when you see a table of x-y values. Always try to prepare a graph and compute the slopes. (Sadly, accountants don't apply what they learned in their calculus class when they analyze their financial reports!) Congrats, if you came this far. :) :) :) http://www.scribd.com/doc/127436107/Tesla-Motors-Profits-Losses-RevenuesAnalysis-and-a-New-Measure-of-Profitability-MPR

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 8. References cited and Related articles

1. Tesla team mulls plan to boost image after New York Times review, Yahoo News, By Nichola Groom, Feb 26, 2013, http://news.yahoo.com/tesla-teammulls-plan-boost-image-york-times-004920849--finance.html 2. Tesla Motors CEO says NYT rift cost company millions, by Kurt Ernst, The Christian Science Monitor, Feb 26, 2013, http://www.csmonitor.com/Business/In-Gear/2013/0226/Tesla-Motors-CEOsays-NYT-rift-cost-company-millions 3. Teslas Musk Predicts 25% Model S Output Gain After Snag, by Alan Ohnsman, Feb 21, 2013 http://www.bloomberg.com/news/2013-02-20/teslaloss-wilens-expects-to-be-profitable-in-early-2013.html 4. As Tesla Eyes Profit, Musk Wants to Punch Himself in the Face, by Ashlee Vance, Bloomberg Businessweek, Technology, Feb 20, 2013, http://www.businessweek.com/articles/2013-02-20/as-tesla-eyes-profit-elonmusk-wants-to-punch-himself-in-the-face 5. Teslas Explosive Revenue Suggests Brighter Future, by Kevin Bullis, MIT Technology Review, February 20, 2013, http://www.technologyreview.com/view/511571/teslas-explosive-revenuesuggests-a-brighter-future/ 6. Model S Efficiency and Range, by Elon Musk and JB Straubel, May 9, 2012, Tesla Executive Blogs, http://www.teslamotors.com/blog/model-s-efficiencyand-range 7. Tesla Test-Drive Controversy Misses the Big Picture, by John Gartner, Forbes, Feb 26, 2013, http://www.forbes.com/sites/pikeresearch/2013/02/26/tesla-test-drivecontroversy-misses-the-big-picture/ 8. Lessons Learned from the Tesla-New York Times Dustup, by Matt Peckham, Time Tech, February 26, 2013, http://techland.time.com/2013/02/26/lessons-learned-from-the-tesla-motorsnew-york-times-dustup/ 9. Musk-New York Times Debate Highlights Electric Cars Shortcomings, MIT Technology Review, Feb 14, 2013, by Kevin Bullis, http://www.technologyreview.com/view/511321/musk-and-new-york-timesdebate-highlights-electric-cars-shortcomings/ 10.Tesla vs New York Times: Cars are now Gadgets, by Ashlee Vance, Bloomberg Businessweek Technology, Feb 14, 2013, http://www.businessweek.com/articles/2013-02-14/tesla-vs-dot-the-new-yorktimes-cars-are-now-gadgets
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11.Fuel Economy and Vehicle Weight Reduction, by V. Laxmanan, Magnesium Forum, June 13, 2005 http://www.magnesium.com/w3/forum/read.php?thread=2772 12.Magnesium and Hybrid Vehicles, by V. Laxmanan, Magnesium Forum, http://www.magnesium.com/w3/forum/read.php?thread=2773 June 18, 2005. 13.An overview of modern supercars, MSN Autos, Supercars offer cutting-edge technology, magnificent engines, race-car braking and snug cockpits. Finished in ultra-lightweight metals and composites, they're gift-wrapped in audacious, head-turning styling. Supercars introduced automotive technology such as brake-by-wire, electronic skid control, variable cam timing, Z-rated tires and more. http://editorial.autos.msn.com/an-overview-of-modernsupercars?icid=autos_4000 14.The United States Securities and Exchange Commission, Form S-1, Registration Statement, Tesla Motors Inc., filed on January 29, 2010 http://www.sec.gov/Archives/edgar/data/1318605/000119312510017054/ds1.ht m#toc51863_11 Also provides also a good introduction to the all-electric vehicle technology commercialized by the company. 15.The United States Securities and Exchange Commission, Form 10-K for fiscal year ending Dec 31, 2011, filed Feb 27, 2012, Tesla Motors Inc., http://ir.teslamotors.com/secfiling.cfm?FilingID=1193125-12-81990 Annual data for the years 2007 to 2011. 16.Fourth Quarter and full year 2012 Shareholder Letter, Tesla Motors, Inc. http://files.shareholder.com/downloads/ABEA4CW8X0/2330790475x0xS1193125-13-67177/1318605/filing.pdf Profits (Loss) Revenues Financial data for 2012. See also Form 8-K filed Feb 20, 2013 http://www.sec.gov/Archives/edgar/data/1318605/000119312513067177/d4624 41dex991.htm and also http://www.marketwatch.com/investing/stock/tsla/financials 17.Annual Financial Data for Tesla Motors, Inc. http://finance.yahoo.com/q/is?s=TSLA+Income+Statement&annual&desktop_v iew_default=true The following links provide the shareholder letters with the financial data; see Condensed Consolidated Statement of Operations

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18.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x637040/4e3260f0b711-47df-9c9e-16a8dda99a19/Q4%2712%20SHL%20022013%20final.pdf Fourth Quarter and Full Year 2012 Shareholder Letter

19.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x611344/42cb80fa6f64-4e48-93ff-2da29de21acc/Q3%202012%20Shareholder%20Letter%20Final.pdf Third Quarter 2012 Shareholder Letter

20.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x585609/25c4efcc7bbe-4452-a4fd-bbedd31c1c94/Q2%202012%20Shareholder%20Letter%20Final.pdf Second Quarter 2012 Shareholder Letter

21.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x567959/9429b5fe3ebc-4e93-9fe9-7655b15301f1/Q1%202012%20Tesla%20Shareholder%20Letter.pdf First Quarter 2012 Shareholder Letter

22.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x542832/322ebc4c9f0e-4fde-833e-fa8a3886dc74/Q4_2011_Shareholder_Letter_021512_Final.pdf Fourth Quarter and Full Year 2011 Shareholder Letter

23.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x514425/77d97f3a72a1-4378-8b34-f8a2bd9dc346/Q3_2011_Shareholder_Letter_Final.pdf Third Quarter 2011 Shareholder Letter

24.http://files.shareholder.com/downloads/ABEA-4CW8X0/2330790475x0x488836/47694e63ee9e-4050-9733-3544cbe90d51/Q2%202011%20Shareholder%20Letter%20-%20Final.pdf Second Quarter 2011 Shareholder Letter

Related articles dealing with the analysis of the financial data for several companies based on the methodology described here for Tesla Motors
(Yes, the Extension of Plancks law, as conceived here, and its generalization, helps us understand the financial data for more complex financial systems) 1. Money in Economics is Just like Energy in Physics: Extending Plancks Law Beyond Physics, Published Jan 14, 2013, http://www.scribd.com/doc/120324960/Money-in-Economics-is-Just-likeEnergy-in-Physics-Extending-Planck-s-law-beyond-Physics 2. Google: A Lovable One-trick Pony, July 1, 2012, http://www.scribd.com/doc/98825141/Google-A-Lovable-One-Trick-PonyAnother-Single-Product-Company-Analyzed-Using-the-New-Methodology
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3. Kia Motor Company: A Disappearing Brand http://www.scribd.com/doc/99333764/Kia-Motor-Company-A-DisppearingBrand, Published July 6, 2012. 4. Three Types of Companies: From Quantum Physics to Economics, May 24, 2012, http://www.scribd.com/doc/94647467/Three-Types-of-Companies-FromQuantum-Physics-to-Economics 5. Some Examples of Corporate Financial Behavior, June 4, 2012, http://www.scribd.com/doc/95906902/Simple-Mathematical-Laws-GovernCorporate-Financial-Behavior-A-Brief-Compilation-of-Profits-Revenues-Data 6. The Air Tran Story: The Merger and the Maximum Point on the ProfitsRevenues Graph, August 14, 2012, http://www.scribd.com/doc/102832984/The-Air-Tran-Story-The-Merger-andMaximum-Point-on-Profits-Revenues-Graph 7. The Future of Southwest Airlines, August 14, 2012, http://www.scribd.com/doc/102835946/The-Future-for-Southwest-AirlinesThe-Unknown-Story-of-Rising-Costs-and-the-Maximum-Point-on-ProfitsRevenues-Curve 8. A Fresh Look at Microsoft after its Historic Quarterly Loss, Published July 25, 2012, http://www.scribd.com/doc/101062823/A-Fresh-Look-at-MicrosoftAfter-its-Historic-Quarterly-Loss 9. A Second Look at Microsoft after its Quarterly loss, Published July 30, 2012, http://www.scribd.com/doc/1015181/A-Second-Look-at-MicrosoftAfter-the-Historic-Quarterly-Loss 10.Yahoo! Inc. Quick Look at recent profits-revenues trends, Published Oct 1, 2012, http://www.scribd.com/doc/108514055/Yahoo-Inc-Quick-Look-atRecent-Profits-Revenues-Trends 11.Yahoo! Inc. Maximum Point on the Profits-Revenues Graph, Published Oct 1, 2012, http://www.scribd.com/doc/108512834/Yahoo-Inc-Maximum-Pointon-the-Profits-Revenues-Graph 12.GM Before the Bankruptcy: Maximum point on the profits-revenues graph, http://www.scribd.com/doc/103938349/GM-Before-the-Bankruptcy-MaximumPoint-on-Profits-Revenue-Graph , Published August 25, 2012. 13.The New GM: A Brief Analysis of the Profits-Revenues Data, http://www.scribd.com/doc/103600274/The-New-GM-A-Brief-Analysis-of-thePage | 31

Profits-Revenues-Data-through-1Q2011, Published May 9, 2011 and again on August 22, 2012, Discussion of the new GM data from 1Q2010 to 1Q2011. 14.Why Cant GM be more like Microsoft? The New GM Just May be. http://www.scribd.com/doc/103607023/Why-Can-t-General-Motors-be-morelike-Microsoft-The-new-GM-may-just-be Published August 22, 2012. 15.Amazon.com Profits-Revenues Analysis: My Facebook Posts, Jan 18,2013, http://www.scribd.com/doc/120933845/Amazon-com-Profits-and-RevenuesAnalysis-My-Facebook-Posts 16.Amazon.com, Analysis of the Profits-Revenues Data, Published Sep 24, 2012, http://www.scribd.com/doc/106881274/Amazon-Profits-Revenues-DataAnalysis 17.The Future of Facebook I, May 21, 2012, Power law behavior with n < 1, http://www.scribd.com/doc/94325593/The-Future-of-Facebook-I 18.Mount Profit Revealed by Ford Motor Company, May 29, 2012, http://www.scribd.com/doc/95140101/Ford-Motor-Company-Data-RevealsMount-Profit 19.The Clinton Budget Surpluses, http://www.scribd.com/doc/105819500/TheClinton-Budget-Surpluses-Treating-Government-like-a-Business, Published Sep 13, 2012 , Google financial data for early years may be found in Table 2. 20.The Amazing US Government Surplus (Deficits)-Receipts Relation during the Clinton Presidency, http://www.scribd.com/doc/105821230/The-AmazingUS-Government-Receipts-Surplus-Relation-during-the-Clinton-Presidency, Published Sep 13, 2012. 21.A Brief Review of the Historical US Government Receipts-Surplus (Deficit) Relation, http://www.scribd.com/doc/106003088/A-Brief-Review-of-theHistorical-US-Government-Surplus-Receipts-Relation, Published Sep 15, 2012. 22. The Efficiency of the Government Compared to the Thermal Efficiency of a Heat Engine, Sep 18, 2012, http://www.scribd.com/doc/106220758/TheEfficency-of-Government-Compared-to-Thermal-Efficiency-of-a-Heat-Engine 23.What is Entropy? June 3, 2012, http://www.scribd.com/doc/95728457/Whatis-Entropy 24.Plancks Blackbody Radiation Law Re-derived for the general case, May 30, 2012, http://www.scribd.com/doc/95329905/Planck-s-BlackbodyRadiation-Law-Rederived-for-more-General-Case

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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by Planck, referred to here as the generalized power-exponential law, might actually
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have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. During my professional career, I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Robert Schrieffer (1972 Physics Nobel Prize), who was the Chairman of the Schrieffer Committee appointed to review NASAs space flight experiments (following the loss of the space shuttle Challenger on January 28, 1986) and second at GM Research Labs to Prof. Robert Solow (1987 Nobel Prize in economics), who was Chairman of Corporate Research Review Committee, appointed by GM corporate management.

Cover page of AirTran 2000 Annual Report Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and photograph it.
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Two relevant articles on Tesla reproduced Tesla team mulls plan to boost image after New York Times review
By Nichola Groom | Reuters 12 hrs ago

http://news.yahoo.com/tesla-team-mulls-plan-boost-image-york-times-004920849-finance.html

View Photo Reuters/Reuters - Elon Musk, co-founder of SpaceX and Tesla Motors, speaks at the California Institute of Technology commencement ceremony in Pasadena, California June 15, 2012. REUTERS/Phil McCarten LOS ANGELES (Reuters) - Tesla Motors Inc's top brass, including Chief Executive Elon Musk, this week are considering a strategy to recoup market value and boost demand after a critical review of the automaker's Model S sedan in New York Times this month. Musk says that Tesla has lost about $100 million in sales and canceled orders due to the Times story, which said the sedan ran out of battery power sooner than promised during a chilly winter test drive from Washington D.C. to Boston.

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"We have seen a few hundred cancellations that are due to the NYT piece and slightly lowered demand in the U.S. Northeast region," Musk told Reuters in an email. To lose $100 million in car sales, assuming a $100,000 price per vehicle, Tesla would have to sell 1,000 fewer cars than expected. Since the Times' February 8 story, by reporter John Broder, Tesla shares have fallen 13 percent, while the S&P 500 index has slid 1.4 percent. Between $100 million and $200 million of Tesla's drop in market value was due to the Times article, Musk said. "The Tesla team and I are brainstorming this week how to correct the misperception that they have created in the market about how well our car performs in cold weather," he wrote. "That too, will take money and time." The Model S is the company's second electric vehicle, after the two-passenger Roadster sports car. The Model S, which went into production last June, starts at nearly $60,000 before a federal tax credit, with stickers ranging to more than $105,000. Its success is crucial for Tesla, which is looking to turn an adjusted profit in the first quarter - the company's first since going public in 2010. Musk lambasted the Times' review of the Model S, calling the test a "fake" on Twitter and producing data logs from that vehicle to disprove the article. Broder in a Times story dated February 12 denied that he had faked anything. Times Public Editor Margaret Sullivan said Broder took "casual and imprecise notes" of his test drive and did not exercise good judgment, but noted that vehicle data logs reproduced by Musk on Tesla's website were "sometimes quite misleading." Sullivan concluded that "there is still plenty to argue about and few conclusions that are unassailable." (Additional reporting By Deepa Seetharaman in Detroit)

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Teslas Musk Predicts 25% Model S Output Gain After Snag

By Alan Ohnsman - Feb 21, 2013 4:14 PM ET http://www.bloomberg.com/news/2013-02-20/tesla-loss-wilens-expects-to-be-profitable-in-early2013.html

Tesla Motors Inc. (TSLA), the maker of electric cars headed by billionaire Elon Musk, plans to increase output by at least 25 percent this year after earnings were hurt by startup snags that drove up costs in 2012. The companys shares fell the most in almost five months after it posted a quarterly loss that missed analyst estimates.
Enlarge image

The company named for inventor Nikola Tesla reiterated a goal of delivering 20,000 lithium-ion-powered sedans this year, after falling short of an initial target of 5,000 in 2012. Photographer: Patrick T. Fallon/Bloomberg

2:54 Feb. 20 (Bloomberg) -- Ben Kallo, an analyst at Robert W. Baird & Co., talks about Tesla Motors Inc.'s fourth-quarter results and outlook. The maker of electric cars run by billionaire Elon Musk said its net loss widened to $89.9 million even as sales of its battery-powered Model S sedans increased. Tesla said it expects to be profitable this quarter. Kallo speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Feb. 20 (Bloomberg) -- Jason Calacanis, chief executive officer of Mahalo.com Inc., talks about his experience owning Tesla Motors Inc.'s Roadster and Model S sedan. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg) Production of the rechargeable sedan at Teslas Fremont, California, plant will probably reach 500 a week in mid-2013 after climbing to 400 a week in December, Musk said in a phone
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interview yesterday. The company will hold off on increasing output until it smoothens out the high amounts of overtime and delays in parts shipments it faced in 2012, he said. The carmaker, named after inventor Nikola Tesla, reiterated a goal of delivering 20,000 of its lithium-ion battery-powered sedans this year, after falling short of an initial target of 5,000 in 2012. Tesla is counting on demand for the car, priced from about $60,000, to help it turn profitable as early as this quarter, with growth accelerating when the Model X crossover vehicle is added in 2014. The shares fell 8.8 percent to $35.16 at the close in New York, the biggest one-day drop since Sept. 25. I want to keep the company on a steady production pace and focus on efficiency, said Musk, 41, Teslas chief executive officer and biggest shareholder. We need to level off and focus on running a real tight ship. Production at its Fremont factory may increase beyond 500 a week toward the end of the year if theres demand, he said.

Quarterly Loss
The Palo Alto, California-company reported a fourth-quarter loss that was larger than analysts anticipated yesterday after the markets closed, blaming a jump in operating costs during the start of production. Operating expenses rose 29 percent to $114.7 million in the quarter because of higher logistics costs and component prices, the company said. John Lovallo, an analyst for BofA Merrill Lynch Global Research, today lowered his rating on Tesla to underperform from neutral, following the companys results. Musk said the share price drop in extended trading yesterday was due to a misconception about demand for the Model S. If we were to close all of our stores today, wed be sold out basically for the whole year, he said. Weve got reservations for roughly 15,000 cars, over and above what weve already delivered. Shipments of Model S to Europe start in the third quarter this year, and to Japan and Hong Kong in the final months of 2013, the company said yesterday. Tesla is also preparing to sell the car to drivers in China, said George Blankenship, vice president of sales.

Beijing Outlet
Were under construction on a store in Beijing that will open in the spring, Blankenship said in an interview. Its going to be one of the larger stores, with respect to the China market size.
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With the addition of those markets and higher production, deliveries may increase 50 percent in 2014 from this year, Musk said. I think 30,000 units in 2014 is a pretty reasonable target, he said. Thats with a little bit of X in the mix. The fourth-quarter net loss widened to $89.9 million, from $81.5 million a year ago, Tesla reported yesterday. Excluding some items, the loss was 65 cents a share, compared with 69 cents a share a year ago. Analysts on average estimated a loss of 57 cents, according to data compiled by Bloomberg. Tesla now expects to post a profit excluding certain items in the first quarter, as sales of the sedan expand. Analysts on average had projected an adjusted loss of 23 cents a share in the first quarter.

Turning Profitable
Our focus in the first quarter is making sure were profitable as promised, Musk said. After that, were certainly going to try to be profitable every quarter. Teslas Model S, with a base price of $59,900 before a $7,500 U.S. tax credit, travels as far as 300 miles (483 kilometers) with a full charge, according to the company. The U.S. has certified Model S range of being between 208 miles and 265 miles, based on battery size. Sales in the fourth quarter jumped more than seven-fold to $306.3 million, from a year earlier, in line with the average analyst estimate of $306.1 million. The company delivered a total of 2,650 vehicles to customers last year, including 2,400 in the fourth quarter. The delivery goal this quarter is 4,500. Operating expenses rose because of significant early- stage cost inefficiencies, including higher logistics costs and component prices, the company said. Those costs will drop substantially this quarter, Tesla said.

Overtime Expenses
High amounts of overtime, with employees in Fremont working about 70 hours a week in late 2012, use of additional temporary workers, and costs to have tires and other parts delivered via airfreight led expenses to jump, Musk said. Most of the nightmares happened in the fourth quarter, he said. Currently, plant employees are working about 50 hours a week, and we want to get to more like a 45-hour week, Musk said. The company expects to be near break even on cash flow from operations in the current quarter. Ideally, cost problems they might have had during the launch are mostly behind them, said Alan Baum, principal of Baum & Associates consulting firm in West Bloomfield, Michigan. If
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thats the case, and it seems to be, it allows them to have a more positive cash flow situation earlier than planned. Tesla counts Daimler AG (DAI) and Toyota Motor Corp. (7203) as both customers and investors, supplying each with battery packs and motors. Tesla rose 14 percent this year before today, after gaining 19 percent last year. The stock outperformed the Standard & Poors 500 Indexs gains of 6 percent and 13 percent respectively in the periods. To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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