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

[Kuda]

Big bucks??
If your talking money, how do you know if it's too small or too large an amount,
if your talking animals, I think they count the bumps on the head, have no idea why they them that which I grew up thinking a a set of racks part of the female anatomy -hey but I'm from NYC
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Bazinga!

 

[grampi]

Well, without a functioning assembly line, each one would indeed need to be 'hand built' and cost so much to produce that no one would buy one. The "economy of scale" is what will allow them to reach their under 7k per unit goal. Now if they could "kit" the parts, I'd be more than happy to give them 5k tomorrow and build it myself. I'd love to be a Beta-tester, and give them real world input on performance, efficiency and things that could use "tweaking" to improve the full production model.

I love the idea of an Elio kit and I would gladly build one myself...

 

[Ty]

I think Paul is saying that he'll need $240 M (or whatever the current number is) to get to production because there are probably a lot of vendors who will only deal in lot sizes... Think about it. The company that is going to mold the dash isn't going to create the mold patterns to make one or even 10 dashes. They'll probably require Paul to buy thousands before they make the first one. I don't think many parts suppliers work by giving parts away either. Paul will have to order lots in the beginning in order to start producing. It shouldn't be hard to secure the loan though if he can show profit of $1,000 per vehicle (not including CAFE credits if he qualifies). $240,000,000 / $1,000 = 240,000 Elios of which 40,000 are already sold (or spoken for). Basically, Elio has to prove that the profit is there and then convince someone that there are 5 customers out there for every reservationist. I don't think that would be that difficult.

 

[WilliamH]

Some gusses..........
250,000 cars / year working 3 shifts.
83,333 cars working one shift.
At a guess 50,000 while working one shift and going through training.
My guess is the first years (2016) full production is almost sold at this point.
2017 will be the first full year of production no matter how many shifts.
Shreveport will probably be a combination staging center and training center for other staging centers.
That probably means stores will start opening for real business in mid/late 2017.
If you don't have a reservation you probably won't get an Elio till mid 2017 at the earliest.
Whatever the money is that is needed, that's what it will take to get the factory running.

 

[Jeff Porter]

I think I read some where Elio wants to borrow $240 mil to get production started? Would it make more sense to borrow a lot less, and start out production slow? I think starting out slow would be more beneficial, and a lot less risky, than borrowing big. When in the hole for big bucks, any hiccup in the economy or business plan could put them under real quick. Your thoughts?

Good question OzarkBugg, after reading the answers so far, I think most of the points are covered well.

Those of us that have not been in the assembly line bidness, don't see easily why a car maker can't just build a handful of vehicles and get something sold and out there. But things like the dash, the special rear tire, and some other parts, won't be available by the handful. They'll be produced by the hundred and most likely bought at a lower price by EM than if they bought them by the handful.

And until the engine has been fully tested, can't even drop the first one of those into a vehicle.

 

[Ty]

Some gusses..........
250,000 cars / year working 3 shifts.
83,333 cars working one shift.
At a guess 50,000 while working one shift and going through training.
My guess is the first years (2016) full production is almost sold at this point.
2017 will be the first full year of production no matter how many shifts.
Shreveport will probably be a combination staging center and training center for other staging centers.
That probably means stores will start opening for real business in mid/late 2017.
If you don't have a reservation you probably won't get an Elio till mid 2017 at the earliest.
Whatever the money is that is needed, that's what it will take to get the factory running.

The GM plant can spit out one vehicle every 52 seconds though we ran the line to spit one out every 54 seconds. The line didn't stop for breaks as those were planned for. There was 8 hours of production per shift... 553 per day. It doesn't take long AT ALL for the average assembly line worker to get up to speed. Since Elio will be using existing suppliers, they should well be able to support production as well. The way I saw it, other than the first few, and I mean few, Elio's will come off the line just about as fast. But to be fair, I'll say 60 seconds per vehicle. So that line would produce 480 per day instead of 553. The GM plant would shut down for a couple weeks every year but I'll say the Elio plant will shut down for 8 weeks... an extra hour here or there during the year and 2 weeks for general maintenance that can't be done in the 16 hours a day the plant is NOT operating.

48 weeks (remember, they aren't producing for 4 weeks) * 5 days a week * 8 hours a day * 60 minutes an hour = 115,200 Elios in the first year.

Add a second shift and they could easily get up to 230,400 Elios without doing anything extraordinary.

(At full speed, they'd put out 128,000 using one shift for the year or 256,000 per year using 2 shifts. This is in line with Paul's proclamation that they want to get up to 250,000 Elio's per year.)

 

[Chris F]

The thing that strangles new companies the most is covering the costs of inventory, work-in-progress and time from construction to sale. People forget that you have to finance what is on the floor, in the warehouse and out for shipment, including the salaries necessary to build them, before you see a dime from sales. If a start-up is too successful and can't meet orders, its another problem. You can't meet either of these problems without substantial capital to work with.

 

[Ty]

Some gusses..........
250,000 cars / year working 3 shifts.
83,333 cars working one shift.
At a guess 50,000 while working one shift and going through training.
My guess is the first years (2016) full production is almost sold at this point.
2017 will be the first full year of production no matter how many shifts.
Shreveport will probably be a combination staging center and training center for other staging centers.
That probably means stores will start opening for real business in mid/late 2017.
If you don't have a reservation you probably won't get an Elio till mid 2017 at the earliest.
Whatever the money is that is needed, that's what it will take to get the factory running.

I agree that Shreveport will also have a staging section and function as a training center for the other 8 across the country. I do, however, believe that Elio will continue to take orders online as they are now and that by that time, the online orders may outstrip production. As they see online purchases slow down and production catching up, they'll open up stores starting in the easiest markets to enter.

 

[Ty]

The thing that strangles new companies the most is covering the costs of inventory, work-in-progress and time from construction to sale. People forget that you have to finance what is on the floor, in the warehouse and out for shipment, including the salaries necessary to build them, before you see a dime from sales. If a start-up is too successful and can't meet orders, its another problem. You can't meet either of these problems without substantial capital to work with.

Excellent point. Logistics doesn't start with the line and end when the car rolls out of the factory.

 

[goofyone]

The thing that strangles new companies the most is covering the costs of inventory, work-in-progress and time from construction to sale. People forget that you have to finance what is on the floor, in the warehouse and out for shipment, including the salaries necessary to build them, before you see a dime from sales. If a start-up is too successful and can't meet orders, its another problem. You can't meet either of these problems without substantial capital to work with.

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.