Perish the Thought

[Don]

I do not relish even thinking this, much less writing about it. Given the sorry state of our economy, I wonder how thie adverse market will impact Aptera Motors? Now that John Q Public will have to pay for the bailout of huge irresponsibly acting companies, with every comoditiy thinkable likely being priced through the roof, with shortages of goods a real possibility, how much money will be left over for purchasing new items?

Seems to me the Aptera is a vehicle with far more appeal to middle income folks, significantly less attractive to those with higher incomes. Since those with average incomes will now have to shell out bucks to rescue those who are already at the top of the heap, will there be enough left over to afford any new car? Bottom line, it seems possible that Aptera Motors may be significantly impacted in the reshuffling of the money. Could this fledgling company maybe have to fold? Just a thought.

So much so far has been secretive, is there any way of approaching the Company for comments on their status? Any thoughts out there in ciberland?

[bigalwedworth]

I can't beleave GM, FORD, just got a 25 Billon loan from GOOD OLe USA.
I don't think Aptera is going to get any of that cash!
If you ask me...
Aptera and other Electric auto makers should get Huge investment money
Now to help out the economy, jobs..
Just crazy..
Who knew..

[DonC]

Bottom line, it seems possible that Aptera Motors may be significantly impacted in the reshuffling of the money. Could this fledgling company maybe have to fold? Just a thought.
There are two potential issues: (1) the promised funding doesn't materialize because the venture group disappears; and (2) they run out of money and can't raise more.

I have no idea about the first. Hopefully the funding is solid. With respect to the second, Aptera is under the gun for producing its vehicles. Every start up has a burn rate. Aptera isn't different. It's spending down its funding for producing its vehicles every month. If it can get cars out the door it can start generating cash as well as burning it. They don't have to be profitable, they just need to be able to slow the drain, which both enables them to extend their current cash and increases their potential to raise money in a very difficult environment.

The bottom line is that Aptera can't afford a lot of delay on the production side. If you see delays it's probably toast because funding is tough at the moment.

[KarenRei]

Yes, VC is going to be tight for a while. No, it's not going to be so tight that *every* company that needs it goes under. It just raises the bar a bit on who gets it. And, honestly, Aptera should have enough VC right now to take them into reasonable-scale production. They're certainly not going to be able to build that southern facility with what they have on hand, and I'm not sure that the, what, $28 mil(?) they've raised could get them up to that 10k cars a year level their Vista facility is desgied for, but to get cars rolling out the door at a reasonable rate? They should be able to handle that.

[DonC]

Yes, VC is going to be tight for a while. No, it's not going to be so tight that *every* company that needs it goes under. It just raises the bar a bit on who gets it. ... I'm not sure that the, what, $28 mil(?) they've raised could get them up to that 10k cars a year level their Vista facility is desgied for, but to get cars rolling out the door at a reasonable rate? They should be able to handle that.
Funding isn't a little tight, it's really tight, and the bar hasn't been raised a bit it's been raised a bunch. VC firms are folding. There is definitely a shake out.

I doubt their current level of funding will get them anywhere near 10K cars a year. The good thing is they don't have to do that. A thousand or two thousand cars a year should allow them to get close to breaking even, assuming the pricing is right. But they have to get the cars out the door pretty soon. Otherwise they are going to burn through their existing funds and won't be able to get more. This is not the environment you want to be fundraising in.

[iwannaptera]

VC firms are folding.

I agree that this is a difficult funding environment, but who is folding? I hadn't heard any of that. From what I can tell, the main players in VC and private equity are going allright so far. Care to share a link?

[KarenRei]

If you assume that half of an automaker's costs are material (building space, raw materials, tooling, etc) and half are personnel, and if you assume that the average salary+benefits+overhead is $140k (including everyone from line-workers to execs), $28m would be enough to fund 100 man-years. I imagine they've already spent about 40 man-years or so. Again, I'm not sure about the $28m number, but I recall it was somewhere in that ballpark; I could look it up if there was interest.

[n_dawg]

Fambro says Aptera only needs to sell 300 vehicles to make the company profitable. So far the company has over 580 orders for the $27,000 Typ-1 e and the $30,000 Typ-1 h. Pilot production is set to begin with 30 Typ-1 e vehicles next year, though eventually Aptera expects to build 2000 vehicles annually. Sign us up for a long-term test. source (http://www.popularmechanics.com/automotive/new_cars/4237853.html?page=11)

Of course, this was back in December 2007. They've gotten significant amounts of VC funding since then.

[DonC]

I have no idea about how to split up the costs. For companies like GM or Toyota, direct labor accounts for approximately 10% of the cost of producing a vehicle, but the methods are so different that is probably a meaningless number. Additionally it costs these manufacturers about $250M to $500M to develop a vehicle. These numbers are also unrealistic but the point that cars are not cheap to build is valid. Hasn't Tesla raised about $140M?

(Ed. by KarenRei: Doh! Sorry, I accidentally deleted part of your post!)

[KarenRei]

I have no idea about how to split up the costs. For companies like GM or Toyota, direct labor accounts for approximately 10% of the cost of producing a vehicle, but the methods are so different that is probably a meaningless number. Additionally it costs these manufacturers about $250M to $500M to develop a vehicle. These numbers are also unrealistic but the point that cars are not cheap to build is valid. Hasn't Tesla raised about $140M?

You can also develop a car for with almost no funding in your garage. The problem is that *every* car will cost you the same as what that first one costs you. The more capital you put in, the more you can lower the per-unit price through automation. Of course, the more important getting things right in the initial design phase becomes.

There's no set amount of money you need to establish a car company. The less your capital, though, the lower your volumes and the more expensive your unit costs are. That doesn't mean people won't pay them, of course; it just means that you have to set yourself apart so that people are willing to pay what you need to charge. There are tons of niche car and motorcycle manufacturers that turn out a couple dozen to a few thousand vehicles per year. And if you're tooling to ultimately produce 10k per year, well... sure, you'd save more on production costs if you went up to the millions like the big automakers, but that's still a reasonable degree of mass production.

[DonC]

You can also develop a car for with almost no funding in your garage. The problem is that *every* car will cost you the same as what that first one costs you. The more capital you put in, the more you can lower the per-unit price through automation. Of course, the more important getting things right in the initial design phase becomes.
Yes this basic economic analysis is correct but it doesn't capture the problem. Economic modeling always assumes adequate capital. For start ups the world is different. Aptera has a limited amount of funds to produce vehicles. If they don't start production then they are going to run out of money before they can start earning revenue from selling them. In this regard, you can't assume all the money is used for production because until production starts they're just burning up cash which will not be available for production. It's a dicey game that all start ups have to play, and my point is that if they don't start generating revenue on something approaching their original schedule they probably won't make it.

The other reality is that Aptera has venture funding. Venture groups aren't long term investors, they're short term investors looking for an exit strategy. If Aptera can break even by selling cars there won't be a problem. But if it can't, and if it runs out of money, then, given the current financial climate, the VCs will probably shut it down. The option of selling twenty cars a year will likely not be available.

It is BTW the reason I think a price increase is forthcoming. The announcement for the C round said the $23M would be used "to start initial production." This suggest they'll need more money to complete it. Say they need $40M/year for production. If they can sell at $32.5K that would be 1230 placements. If they sell at $28K they'd need to make and place 1430. That doesn't seem like a big difference but if it costs them $20K to make the car then getting the same revenue from 200 fewer cars saves them $4M, which is big percentage of the budget.

[iwannaptera]

Yes this basic economic analysis is correct but it doesn't capture the problem. Economic modeling always assumes adequate capital. For start ups the world is different. Aptera has a limited amount of funds to produce vehicles. If they don't start production then they are going to run out of money before they can start earning revenue from selling them. In this regard, you can't assume all the money is used for production because until production starts they're just burning up cash which will not be available for production. It's a dicey game that all start ups have to play, and my point is that if they don't start generating revenue on something approaching their original schedule they probably won't make it.

The other reality is that Aptera has venture funding. Venture groups aren't long term investors, they're short term investors looking for an exit strategy. If Aptera can break even by selling cars there won't be a problem. But if it can't, and if it runs out of money, then, given the current financial climate, the VCs will probably shut it down. The option of selling twenty cars a year will likely not be available.

It is BTW the reason I think a price increase is forthcoming. The announcement for the C round said the $23M would be used "to start initial production." This suggest they'll need more money to complete it. Say they need $40M/year for production. If they can sell at $32.5K that would be 1230 placements. If they sell at $28K they'd need to make and place 1430. That doesn't seem like a big difference but if it costs them $20K to make the car then getting the same revenue from 200 fewer cars saves them $4M, which is big percentage of the budget.

Wow Don, it seems like you are very in favor of aptera raising their prices. I for one disagree. If they need money, I would be much happier if they made it up in volume. Let's face it, most consumers are not interested in a car that costs substantially more than 30K. The prius sells, but the volt won't sell at over 40K, the pheonix motorcar won't sell at over 40K. The Think won't sell at over 40K if you include the battery pack. At those prices it just makes too much damn sense to get a VW -TDI car or a prius or a civic hybrid or any number of cars if you care about the environment/funding the middle east etc. If you are just a cheap bastard, and are trying to save money, then get a regular civic......

The aptera type 1e and type 1h has a decent chance at selling well at around 30K. To most folks on this planet the difference of 10-20K compared to competitor prices is a big difference. However, the closer aptera gets to those competitors prices, the more people think about how it looks really weird, has a limited range (1e), comes from an unknown company that might not be around to honor any warranty, may not have financing, may not be repairable by cheaper non-dealership mechanics, is relatively untested, only seats 2, cannot tow or carry a roof rack etc. If aptera wants to forever be a niche player in the motor vehicle market, that is their right. The best way they can guarantee that is to raise their prices.

[DonC]

Wow Don, it seems like you are very in favor of aptera raising their prices. I for one disagree. If they need money, I would be much happier if they made it up in volume.
Actually I'm very much in favor of their staying in business. If that means a price hike then so be it. Keep in mind that if the $7500 tax credit applies then they could raise the price to $35,500 and you'd have an under $30K car. This is why the incentive is so important.

We also need to accept that early adopters end up paying for those who follow. What happened to Tesla? I think the price went from $90K to $98K and I think the price has been raised again. The other way to say this is if you want one of the first EVs you will have to pay a premium. However, if you're willing to wait, as Aptera goes up the learning curve prices should drop.

Finally volume won't really work here. You can't make the numbers work on volume because, with volume, while gross revenue goes up, net goes down. (That's the part of having $20 of capital tied up in each car).

[iwannaptera]

Actually I'm very much in favor of their staying in business.

agreed

Finally volume won't really work here. You can't make the numbers work on volume because, with volume, while gross revenue goes up, net goes down. (That's the part of having $20 of capital tied up in each car).

????? As long as you are making ANY profit on a unit, volume works. What got the dot com guys in trouble was forgeting that. If you don't make ANY profit, volume makes things worse not better. Are you confusing economies of scale and just plain volume?

Say they need $40M/year for production. If they can sell at $32.5K that would be 1230 placements. If they sell at $28K they'd need to make and place 1430. That doesn't seem like a big difference but if it costs them $20K to make the car then getting the same revenue from 200 fewer cars saves them $4M, which is big percentage of the budget.

After re-reading this I am not sure what your point is. If it costs $40M to get production going then what is the break-even point assuming 20K cost per car at different price points? I'm not sure why that matters. If they can make the cars for 20K, then they should sell as many damn cars as they can at the price the market will bear. The lower the price, the more buyers, it's called demand elasticity. If they can't sell much more than 1430, then this company isnt going anywhere. If they can sell 14,300 at 28K, but only 12,000 at 33K (let's say in 5 years), then they ought to sell at 28K.

[DonC]

After re-reading this I am not sure what your point is. If it costs $40M to get production going then what is the break-even point assuming 20K cost per car at different price points? I'm not sure why that matters. If they can make the cars for 20K, then they should sell as many damn cars as they can at the price the market will bear. The lower the price, the more buyers, it's called demand elasticity. If they can't sell much more than 1430, then this company isnt going anywhere. If they can sell 14,300 at 28K, but only 12,000 at 33K (let's say in 5 years), then they ought to sell at 28K.
If you have $20M and it costs $20K to make a car then you can produce and sell 1000 cars. If you sell the cars for $28K that means you will have $28M for the next period and can sell 1400 cars. If you sell the cars for $38K you will have $38M and be able to make 1900 cars the next period. Going forward the difference in numbers becomes significant.

Basically it's pointless to talk about how you could sell 5000 cars at $21K if you only have enough money to make 1000. Many small companies with successful products have gone out of business by pricing their product too low and running into cash flow problems.

[iwannaptera]

If you have $20M and it costs $20K to make a car then you can produce and sell 1000 cars. If you sell the cars for $28K that means you will have $28M for the next period and can sell 1400 cars. If you sell the cars for $38K you will have $38M and be able to make 1900 cars the next period. Going forward the difference in numbers becomes significant.

Basically it's pointless to talk about how you could sell 5000 cars at $21K if you only have enough money to make 1000. Many small companies with successful products have gone out of business by pricing their product too low and running into cash flow problems.


Okay, that makes sense. But, it assumes NO additional cash infusions. I know times are tough, but they aren't that tough. There are still companies getting series B and C financing. There are still companies being bought out. There are still companies going IPO even.

$20M and it costs 20K to make a car that sells at 28K equals 1400 cars. Company goes IPO and raises $100M. Company sells a bunch of cars at 28K.

Aren't these WAG numbers fun?:happy0025:

[Apt3448]

"Aren't these WAG numbers fun?"
Being a stranger to this language (I'm Dutch) I thought I'd take the opportunity and learn...
According to http://www.acronymfinder.com/WAG.html

** WAG Walgreen Co (stock symbol)
*****WAG Welsh Assembly Government
*****WAG Gambia (international vehicle registration)
**** WAG Wives and Girlfriends (of the English Football team)
**** WAG Will and Grace (TV show)
**** WAG Wife and Girlfriend
**** WAG What A Guy
**** WAG Wild Ass Guess
**** WAG Watershed Advisory Group
**** WAG Water Alternating Gas (water/gas injection)
*** WAG Women's Artistic Gymnastics
*** WAG Web Advisory Group
*** WAG We Are God's
*** WAG Waste Area Grouping
*** WAG Wireless Access Gateway
*** WAG Wireless Application Gateway
*** WAG Wireless Athens Group
*** WAG Widely Attended Gathering
*** WAG Willamette Agility Group
*** WAG Watershed Assistance Grant

Ah!

[thimel]

In case you are in doubt, WAG stands for Wild Ass Guess in the context.

[bigalwedworth]

Wow.. with all that guessing about rasing price's to make money...
How bought..... Lowering price's to sell more and make more money.... What a concept?
I Like my idea better!! Way better!
I'm on the list to buy one of these little fun elec trikes..
But if you rase the price... I'll be like others will jump ship, then who will you sell your car too.... ha?

Rich folks who don't need a new TOY!
Is this helping the ecomony??
I thought we were trying to help the environment And Build the Ecomony here with the Aptera???
Not filling the deep pockets of FAT cat's at the top!!! ( and thats going to happen anyway)
Sounds like just what got us here in this Train Wreck of an ecomony....
Ahhhhhhhhh.....
Take a deep breath... and... relax.... every thing is going to be all right.
Cheers.

[OC-LA driver]

The key to Aptera's survival will be people actually buying the cars and not asking for their $500 back. My biggest concern is all the "e" reservations converting to "h" and delaying Aptera's expected revenue generation. Once demand is demonstrated, capital will come. They just have to survive, ship units (preferably "e" i.e. soon), suffer not too many cancellations...and not tie up all their funds in development, assembly jigs, or half-built units that aren't shipped and paid for (the classic cash flow problem).

Idealab like Kleiner Perkins has a good brand and great network; if the business is working they can keep it funded. Yes the seed capital generally wants out fast at a big multiple. So the mezzanine guys come in to fund growth...hey the concept's been proven so risk is lower. They may take on debt as lower-cost capital; they may sell a tiny bit to he public years from now. When more mature look for their exit, by going public, selling to management, or finding a strategic buyer (read "Toyota"). Investors know lots of great private companies don't want to mess w going public so...if you build it, they will come.

[garygid]

DonC,
Isn't your "selling analysis" flawed because money from sales comes in with each sale?

[DonC]

DonC,
Isn't your "selling analysis" flawed because money from sales comes in with each sale?
Actually I don't quite understand the question. You have to pick a period and, as a practical matter, you won't end up getting the revenue the day the car comes off the line. There are a lot of lags in the payment process.

But the analysis would hold if you produced each car at a separate facility, the only difference being that you'd naturally start looking at production turns. The ramp up still depends on margin. You'd have to sell 3 cars at $28K before you had the extra $20K to produce two cars at once but if you priced the first car at $40 you'd only need to sell one car in order to get the $20K needed to produce two. Consolidating the sales revenue just allows for a ramp up with smoother transitions.

If you ramp up faster than the margin allows you either have to have more funding from outside sources or go bust.

[garygid]

Once the initial "kinks" are worked out of the "e", I expect
Aptera to ramp up production as fast as they can hire and train
new production people, consistant with demand.

Reaching a point of real positive cash flow might take something like
2000 vehicles a year (only 8 a day) ... as a total guess based upon
an estimate $10,000,000 yearly "overhead" beyond direct manufacturing
costs (parts, labor, sales, and warranty service) and $5000 per vehicle.

However, costs, margin, and overhead could be much different.

[A1phaGeek]

Something that no one here has mentioned about Venture Capital and our current economic situation, it that when times are bad, people are always looking at where is the "best" or "safest" place to put any money they still have. One of the problems of a "bubble" economy, it that all the money goes form one sector, to another when the first gets over inflated. The money has to go some where, and the current "safe bet" is green technology. When the dot com bubble burst, every one put their cash into the housiong sector, now that it has busted, the green sector is the "next bubble".

In this investment climate, venture capital for Aptera should not be an issue. The issue will be how long can the green tech bubble last? Will Aptera be self sustaining by the time the bubble goes flat? Will the bubble be more sustainable than the housing and dot com bubbles were? The future of investment and possible over investment will determine this. green tech has the potential to be "less understandable" by main street investors, so the bubble might not get so over inflated as to need to burst in quite as destructive a way as the last two bubbles, but only the future will tell.

But since green tech investment is the flavor of the year, as long as this climate lasts, Aptera's funding should not be an issue.

Here are a couple of references for this "next bubble" concept:

Wired--Only Greentech Can Save U.S. Economy, Says Über-Investor
http://blog.wired.com/wiredscience/2008/05/only-greentech.html
FTA-"There's only one catch: We need another wealth-generating economic bubble. And that, said Novogratz, must come -- can only come -- from new energy sources and green technology."

Fortune-The jolly green bubble
http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/16/8404301/
FTA-"There's a new bubble in Silicon Valley, and I'm in the office of John Doerr, watching it expand. Doerr, of course, is the legendary venture capitalist and inflator-in-chief of the last glorious investment craze. (Remember "The Internet is the greatest legal creation of wealth in history"? That was him.) So what's his take on green technology? "This could be the biggest economic opportunity of the 21st century."

[iwannaptera]

Something that no one here has mentioned about Venture Capital and our current economic situation, it that when times are bad, people are always looking at where is the "best" or "safest" place to put any money they still have. One of the problems of a "bubble" economy, it that all the money goes form one sector, to another when the first gets over inflated. The money has to go some where, and the current "safe bet" is green technology. When the dot com bubble burst, every one put their cash into the housiong sector, now that it has busted, the green sector is the "next bubble".

In this investment climate, venture capital for Aptera should not be an issue. The issue will be how long can the green tech bubble last? Will Aptera be self sustaining by the time the bubble goes flat? Will the bubble be more sustainable than the housing and dot com bubbles were? The future of investment and possible over investment will determine this. green tech has the potential to be "less understandable" by main street investors, so the bubble might not get so over inflated as to need to burst in quite as destructive a way as the last two bubbles, but only the future will tell.

But since green tech investment is the flavor of the year, as long as this climate lasts, Aptera's funding should not be an issue.

Here are a couple of references for this "next bubble" concept:

Wired--Only Greentech Can Save U.S. Economy, Says Über-Investor
http://blog.wired.com/wiredscience/2008/05/only-greentech.html
FTA-"There's only one catch: We need another wealth-generating economic bubble. And that, said Novogratz, must come -- can only come -- from new energy sources and green technology."

Fortune-The jolly green bubble
http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/16/8404301/
FTA-"There's a new bubble in Silicon Valley, and I'm in the office of John Doerr, watching it expand. Doerr, of course, is the legendary venture capitalist and inflator-in-chief of the last glorious investment craze. (Remember "The Internet is the greatest legal creation of wealth in history"? That was him.) So what's his take on green technology? "This could be the biggest economic opportunity of the 21st century."

I'm guessing DonC is well aware of the green bubble. Unfortunately for Aptera, the green bubble was so almost a year ago. http://www.harpers.org/archive/2008/02/0081908 Those of us dealing with VC firms and clean tech clients are already seeing a cooling off atmosphere. Deals are still getting done. Thankfully (IMO), the VC's are actually starting to think first about whether a business plan makes some sense though.