Borrow $240 Mil, Or Borrow Alot Less And Start Out Slow?

[goofyone]

I'm thinking, if and when that ever happen, we will all be surprised how fast our our "spot in line" numbers move up the ladder. Given all the folks that are no longer interested, and have moved on.

There will be some losses however when this vehicle actually moves into production the vast majority of reservation holders will buy them as they will be in demand as a unique, and relatively inexpensive, new thing that nobody else can buy for a while. Remember the vast majority of reservation holders are not really following along very closely and not as anxious as this online group, there will be people who will not want it but will buy it knowing they will be able to resell them instantly at a profit, and many of the people who are currently down about EM or nay saying are just being fair weather fans and they will return to the flock when the weather looks better. For EM this small lost percentage will not matter at that point as the reservation would have already served its purpose and EM will be able to add several reservations for each one lost as the fence sitters and new comers join in the fun after it is obvious these will be built.

 

[eliothegreat]

I do not believe you, or the many others who have mentioned similar ideas, have truly thought these suggestions through and as a result have not realized their full ramifications. The fact of the matter is that low volume production is extremely expensive as compared to mass production and this is on top of the fact that it is very expensive to set up a production facility even if intended for low volume.

EM needs $30 million to complete vehicle development regardless of what happens after that. Let's say in small scale production it costs EM $15,000 for the materials, parts, and labor to build each of the 1,000 vehicles. This estimate may even be low as the engine alone would cost EM several thousand each even if buying them from another manufacturer who would of course be making a profit on the deal. Production facilities are anything but inexpensive so let's say for only $60 million EM could set up a temporary production line with the required equipment, custom tooling, recruit workers, hire workers, train workers, and cover overhead for the plant and corporate functions. All this adds up to just under $100 million, and this truly is a conservative estimate, which EM would have to raise while admitting to potential investors that all of this will be done to sell a limited run of vehicles at a loss as some kind of marketing ploy meant to increase order numbers so EM can raise an even larger sum of money for mass production.

I believe you seriously underestimate the intelligence, capabilities, and experience of the people you talk to.

Regardless of elio's claims that they have spent $500k on the P4, it would not cost anywhere close to $30M to build 25 prototypes. Testing would cost money, but you are correct in stating that elio could build the vehicles for $15k in small-scale production. Even at $50k each, that is only $1.25M to build the prototypes. They have already wasted millions in developing the engine, and the additional multi-million dollar costs to bring it up to production quality, and the additional millions for the factory equipment to build the engine is what pushes the project costs way beyond their reach.

Of course, an engine manufacturer would want to make a profit on the deal. So will all the other suppliers. That was they point of off-the-shelf construction and negotiating cost+20% deals with their suppliers. If they have cost+20% deals in place as paul claims, their focus should be on building the frame/chassis, the body panels, and a few specific interior pieces. I know, nothing is "that simple", but if they stick with off-the-shelf as claimed, their costs will not drop that dramatically with volume.

What it would mean is that elio would have to walk back a lot of their statements - re: engine, mpg, price, etc. They would still need $100M+, and would have to sell for ~$8800, but they could be in sustainable production in 18 months. Elio needs to offer potential investors a way for them to earn a reasonable return on their money. Their current plan does not offer that.

 

[Kuda]

Snipped: The more time I take to consider the benefits of the reservation systems the more I am amazed at just how many benefits EM derives from this system.

Your analysis makes a strong due diligence argument for the ATVM. should Elio get
the funds needed to build the test vehicles/engines that will (IMHO) cement their
qualification for the ATVM. Which, I believe, has been the plan for some time......

 

[WilliamH]

I believe you seriously underestimate the intelligence, capabilities, and experience of the people you talk to.

Regardless of elio's claims that they have spent $500k on the P4, it would not cost anywhere close to $30M to build 25 prototypes. Testing would cost money, but you are correct in stating that elio could build the vehicles for $15k in small-scale production. Even at $50k each, that is only $1.25M to build the prototypes. They have already wasted millions in developing the engine, and the additional multi-million dollar costs to bring it up to production quality, and the additional millions for the factory equipment to build the engine is what pushes the project costs way beyond their reach.

Of course, an engine manufacturer would want to make a profit on the deal. So will all the other suppliers. That was they point of off-the-shelf construction and negotiating cost+20% deals with their suppliers. If they have cost+20% deals in place as paul claims, their focus should be on building the frame/chassis, the body panels, and a few specific interior pieces. I know, nothing is "that simple", but if they stick with off-the-shelf as claimed, their costs will not drop that dramatically with volume.

What it would mean is that elio would have to walk back a lot of their statements - re: engine, mpg, price, etc. They would still need $100M+, and would have to sell for ~$8800, but they could be in sustainable production in 18 months. Elio needs to offer potential investors a way for them to earn a reasonable return on their money. Their current plan does not offer that.

Without being rude I really have to ask if you have ever built a prototype of anything.
I recently built 3 prototypes of what I will call a feeder filler.
(If you have ever hunted Texas you probably know what a broadcast deer feeder is, if not it makes no real difference.)
The first (P1 if you will) was for my personal use.
The second was for a close friend.
The third was for a friend of a friend.
Looking at the materials cost I have to consider how much did it cost me to acquire the materials?
Since I had to buy materials to meet my spec in whatever quantity I could get them in.
That raw cost was $500 with material left over.
Breaking it down to material used it was $400.
Assembly time was 2 men at 7 hr each.
Assume $28.50 / hr and you have about $400 labor.
And we can't forget about the tools..........
Pneumatic rivet gun
Pneumatic tin snips
Circular saw
saws all
abrasive hole saw
hole saw
electric drill
And air compressor to run pneumatic tools
Labor to produce templates in heavy paper
And I'm sure there are things I left out.
So at $800 I would cover the materials and labor.
With no room for reasonable overhead.
And none of that takes care of other related expenses.

If it were being built on a line it would be a lot cheaper and faster.
If I was buying it volume, the raw materials would probably be down to $100 to $150.
Politely, it isn't clear that you know what you are talking about.

 

[eliothegreat]

WH, your definition of polite is what I might term passive-aggressive. Regardless, I'll answer your question. Yes, I have designed, prototyped, and taken a product to production and sales. Like G1, you underestimate the intelligence, capabilities and experience of those you talk to.

Of course, the first few prototypes are more expensive than mass-produced models. Nobody is stating otherwise. If we are to believe Paul, he should be able to sell the trike for $7300 profitably in large quantities. That does not translate to $500k each in low volume, or even $100k.

I work on occasion with custom car builders. You can get some really nice vehicles for $75-150K. You can outfit a real nice shop for well under $2M, especially if you already have the land and building. Elio could have 25 prototypes on the road for under $5M if they were in the least bit serious.

My opinion? Buy the engine, target 50K units per year, price it to sell profitably to attract investors, and get started. But my opinions mean nothing to you, and nothing to Elio Motors. My way might not work, but so far, neither has Paul's.

BTW, congrats on the feeder fillers. It really does feel good to produce and sell something you have designed and built.

 

[Rickb]

I'm thinking, if and when that ever happen, we will all be surprised how fast our our "spot in line" numbers move up the ladder. Given all the folks that are no longer interested, and have moved on.

By the time production rolls around, those of us remaining may all get our Elios by the end of the first week of production. I would feel more confident that any bugs have been worked out with a Thursday production run. Monday's too early, Friday's the plant workers may lose focus getting ready for the weekend after a tough first week on the line.

 

[Rickb]

WH, your definition of polite is what I might term passive-aggressive. Regardless, I'll answer your question. Yes, I have designed, prototyped, and taken a product to production and sales. Like G1, you underestimate the intelligence, capabilities and experience of those you talk to.

Of course, the first few prototypes are more expensive than mass-produced models. Nobody is stating otherwise. If we are to believe Paul, he should be able to sell the trike for $7300 profitably in large quantities. That does not translate to $500k each in low volume, or even $100k.

I work on occasion with custom car builders. You can get some really nice vehicles for $75-150K. You can outfit a real nice shop for well under $2M, especially if you already have the land and building. Elio could have 25 prototypes on the road for under $5M if they were in the least bit serious.

My opinion? Buy the engine, target 50K units per year, price it to sell profitably to attract investors, and get started. But my opinions mean nothing to you, and nothing to Elio Motors. My way might not work, but so far, neither has Paul's.

BTW, congrats on the feeder fillers. It really does feel good to produce and sell something you have designed and built.

I agree with your cost estimate of building the 25 prototypes which doesn't seem like a lot of money in the big scheme of things. That makes me wonder why the prototypes aren't built or at least in the process of being built. That milestone activity alone would create a more exciting and favorable private funding environment.

 

[Chris F]

More cash is always better however thanks to the reservation system EM has found a way around this common problem faced by many start-ups. The reservation system means that EM will already have a signed contract to sell every vehicle they build before they even order the parts and materials to build each vehicle for at least the first year. EM will have the proceeds from these sales within at most a couple of weeks of each vehicle rolling off the assembly line and thanks to just in time production EM will not have much excess inventory which does cost money. The only cash EM really needs is to pay any bills which may come due within this short several week window.

Parts and materials will be delivered just in time, with payment due net 30 or longer, so by the time the bills are due for parts and materials a happy reservation holder will have already completed their vehicle purchase and EM will have the funds to pay the bills. The OEM suppliers are used to being paid this way and they will extend EM this credit, despite EM being a 'risky' start-up, because it will be safe for them to do so as they will know EM has pre-sold these vehicles. This even works for a lot of overhead costs such as utilities, which are postpaid, and I bet EM even floats worker salaries this way. Worker salaries are easy to float for several weeks by paying workers every other week with a two week delay for processing as a result the time from when a worker first begins working on the line to when they receive their first pay check is four weeks.

The more time I take to consider the benefits of the reservation systems the more I am amazed at just how many benefits EM derives from this system.

Good point, but it will really depend on the terms they get from suppliers and terms they give to buyers. Plus, there are any number or pre-cash flow costs, like staffing and training, that will still have to be incurred before any sales revenue. I'm not being negative, just realistic.

 

[WilliamH]

WH, your definition of polite is what I might term passive-aggressive. Regardless, I'll answer your question. Yes, I have designed, prototyped, and taken a product to production and sales. Like G1, you underestimate the intelligence, capabilities and experience of those you talk to.

Of course, the first few prototypes are more expensive than mass-produced models. Nobody is stating otherwise. If we are to believe Paul, he should be able to sell the trike for $7300 profitably in large quantities. That does not translate to $500k each in low volume, or even $100k.

I work on occasion with custom car builders. You can get some really nice vehicles for $75-150K. You can outfit a real nice shop for well under $2M, especially if you already have the land and building. Elio could have 25 prototypes on the road for under $5M if they were in the least bit serious.

My opinion? Buy the engine, target 50K units per year, price it to sell profitably to attract investors, and get started. But my opinions mean nothing to you, and nothing to Elio Motors. My way might not work, but so far, neither has Paul's.

BTW, congrats on the feeder fillers. It really does feel good to produce and sell something you have designed and built.

Good point, but it will really depend on the terms they get from suppliers and terms they give to buyers. Plus, there are any number or pre-cash flow costs, like staffing and training, that will still have to be incurred before any sales revenue. I'm not being negative, just realistic.

I agree with your cost estimate of building the 25 prototypes which doesn't seem like a lot of money in the big scheme of things. That makes me wonder why the prototypes aren't built or at least in the process of being built. That milestone activity alone would create a more exciting and favorable private funding environment.

It's possible that they plan to do the finishing, milling, and fire coating on their own line as part of the preliminary setup.
It would make sense.

 

[Rickb]

It's possible that they plan to do the finishing, milling, and fire coating on their own line as part of the preliminary setup.
It would make sense.

Yes it would make sense. EM did say long ago the they would use the first prototype for tooling the plant.