Fun With Numbers

[Ekh]

Elio Motors is still struggling to get cars built, tested, and into production. They’re working as hard as they can to make it happen … but there’s a chain of events that leads to success.

As of now, Elio needs $240 million more to open the doors. Sources of funding are

1. Reservations
2. ATVM loan guarantee
3. Private investors / venture capitalists
4. Crowd funding / Reg A+ investors

The sequence of events that needs to occur is 1. Get test cars built and tested. If test results indicate the car gets more than 75mpg, and that the final selling price of the car is profitable then the ATVM loan will (likely) happen. If the ATVM loan happens, reservations soar, private investors come on board, and another Reg A+ campaign will succeed.

Now comes the fun with numbers part.

Assume the final selling price of the base car is $7,600, which is highly likely according to official Elio comments about being $800 over the $6,800 target.

At that price, the value of today’s 55,200 reservations is $419.5 MILLION. That’s without revenue from options, CAFÉ credits, or anything else. Just on the base price of the car.

Elio estimates gross profit at 20%, or $83.9 million on cars that are already sold.

Elio is expecting to produce 240,000 cars per year at full volume. Let’s assume in the first year they only produce 125,000 cars. At $7600 / car, the gross sales are $950 million. That’s right, just under 1 BILLION DOLLARS in the first year.

Profit on the 125,00 cars is $190 million. At full production, the profit is $364 million. Paying off the ATVM loan, plus additional loans for operating capital, is a piece of cake.

So, fuel efficiency of the car is the first concern of DOE. Second is the financial viability of Elio Motors. The current book of business (based on actual reservations) is so strong that repayment of the loan is a virtual certainty. Risk to the Feds is minimal (which really matters to them after Fisker and Solerna, or whatever the photovoltaic panels company was called). The requirement that the company be able to succeed without further Federal loans has already been demonstrated by the existing reservations.

So here’s the real fun with numbers: thanks to the reservation program, the company is already worth enough to be very attractive to some investors. If the ATVM loan guarantee comes through, it becomes a magnet for additional lenders and investors.All they have to do get those test cars through their paces. The rest will follow.

All the above is based on the bare-car selling price being $7,600. But how many cars will be bare? Answer – under 10% at most. That’s because over 90% of buyers will order automatic transmissions at $1100, which have about a 50% margin built into them).

So let’s assume an actual average sales price of $8,400 per car. Now the numbers really climb:
55,200 current reservations now are worth $463.7 million. Profit on those reservations is $92.3 million (at least).

Now assume Elio needs not only the $240 million to open the doors, but another $120 million to keep them open for the first year. Total is $360 million dollars, while the current orders are worth $463.7 million.

In other words, if the actual average selling price of the car (including options, but excluding delivery, taxes, and licence fees) is $8,400 per car, the entire first year of operations, plus repayment of DOE and working capital, is already covered.

Who wouldn’t want to get in on a deal like that?

If orders ballooned to 200,000 cars the first year (a stretch, but feasible), that’s gross revenue of $1.7 BILLION dollars (at $8,400/car). At that point, dividends can be paid and the entire operation becomes self-funding.


Cha-ching!

 

[Ty]

Elio Motors is still struggling to get cars built, tested, and into production. They’re working as hard as they can to make it happen … but there’s a chain of events that leads to success.

As of now, Elio needs $240 million more to open the doors. Sources of funding are

1. Reservations
2. ATVM loan guarantee
3. Private investors / venture capitalists
4. Crowd funding / Reg A+ investors

The sequence of events that needs to occur is 1. Get test cars built and tested. If test results indicate the car gets more than 75mpg, and that the final selling price of the car is profitable then the ATVM loan will (likely) happen. If the ATVM loan happens, reservations soar, private investors come on board, and another Reg A+ campaign will succeed.

Now comes the fun with numbers part.

Assume the final selling price of the base car is $7,600, which is highly likely according to official Elio comments about being $800 over the $6,800 target.

At that price, the value of today’s 55,200 reservations is $419.5 MILLION. That’s without revenue from options, CAFÉ credits, or anything else. Just on the base price of the car.

Elio estimates gross profit at 20%, or $83.9 million on cars that are already sold.

Elio is expecting to produce 240,000 cars per year at full volume. Let’s assume in the first year they only produce 125,000 cars. At $7600 / car, the gross sales are $950 million. That’s right, just under 1 BILLION DOLLARS in the first year.

Profit on the 125,00 cars is $190 million. At full production, the profit is $364 million. Paying off the ATVM loan, plus additional loans for operating capital, is a piece of cake.

So, fuel efficiency of the car is the first concern of DOE. Second is the financial viability of Elio Motors. The current book of business (based on actual reservations) is so strong that repayment of the loan is a virtual certainty. Risk to the Feds is minimal (which really matters to them after Fisker and Solerna, or whatever the photovoltaic panels company was called). The requirement that the company be able to succeed without further Federal loans has already been demonstrated by the existing reservations.

So here’s the real fun with numbers: thanks to the reservation program, the company is already worth enough to be very attractive to some investors. If the ATVM loan guarantee comes through, it becomes a magnet for additional lenders and investors.All they have to do get those test cars through their paces. The rest will follow.

All the above is based on the bare-car selling price being $7,600. But how many cars will be bare? Answer – under 10% at most. That’s because over 90% of buyers will order automatic transmissions at $1100, which have about a 50% margin built into them).

So let’s assume an actual average cost of $8,600 per car. Now the numbers really climb:
55,200 current reservations now are worth $463.7 million. Profit on those reservations is $92.3 million (at least).

Now assume Elio needs not only the $240 million to open the doors, but another $120 million to keep them open for the first year. Total is $360 million dollars, while the current orders are worth $463.7 million.

In other words, if the actual average selling price of the car (including options, but excluding delivery, taxes, and licence fees) is $8,400 per car, the entire first year of operations, plus repayment of DOE and working capital, is already covered.

Who wouldn’t want to get in on a deal like that?

If orders ballooned to 200,000 cars the first year (a stretch, but feasible), that’s gross revenue of $1.7 BILLION dollars (at $8,400/car). At that point, dividends can be paid and the entire operation becomes self-funding.


Cha-ching!

Fun with numbers indeed. I thought Elio said they'd make 10% per base car and 20% on options (including the transmission).
Though, with probably about 90% of people buying the automatic (man, we've become lazy), that's still $110 profit for just that one option. Now, it is possible that Elio would eat into their "base" profits in order to keep close to their $6,800 price which would make for great press. Well, maybe they'd do that for the reservationists. Anyway, even making just 5% on the base and 20% on accessories, they'd probably do very well. Most people will probably get the automatic transmission and carpet at a minimum plus a couple of other accessories. Paul had originally said that the $6,800 price included $1,000 profit per vehicle. I wonder if the "$800 over $6,800" still has that $1,000 built in. IF it does, even if they are $800 over $6,800 in cost, they could back up to $6,800 and still make $200 per vehicle in profit. That isn't very much but they could surely do that for a bit to clear the reservations.

$1,000 profit per base vehicle plus $110 profit on each automatic transmission = $1,110 per car X 200,000 = $222M profit in the first year.

(By extension, each car sold with that Skyz system would add $400 in profit for each the Elio sold.)

 

[bunchathrees]

I suspect that we reservation holders have already received all of the incentives we're likely to get; the all-in incentives are phasing out.

The pressure to become a viable company will keep rising. I'll be happy if we can stay below $8K sans options.

 

[Ty]

I suspect that we reservation holders have already received all of the incentives we're likely to get; the all-in incentives are phasing out.

The pressure to become a viable company will keep rising. I'll be happy if we can stay below $8K sans options.

I don't think there will be more incentives. I just think there's a strong possibility that Paul will try really hard to not gouge us too much. In fact, I would bet they'd eat into their own profit a bit if it was the difference between being "less than $7,000" or "just over $7,000" because that's a great advertising thing. They could do that and then for the 2018 model, increase the price to capture back that missing profit.

 

[floydv]

I don't think there will be more incentives. I just think there's a strong possibility that Paul will try really hard to not gouge us too much. In fact, I would bet they'd eat into their own profit a bit if it was the difference between being "less than $7,000" or "just over $7,000" because that's a great advertising thing. They could do that and then for the 2018 model, increase the price to capture back that missing profit.

They could even announce a price increase ahead of time to drive sales even more.

 

[bunchathrees]

I don't think there will be more incentives. I just think there's a strong possibility that Paul will try really hard to not gouge us too much. In fact, I would bet they'd eat into their own profit a bit if it was the difference between being "less than $7,000" or "just over $7,000" because that's a great advertising thing. They could do that and then for the 2018 model, increase the price to capture back that missing profit.

Nothing wrong with positive speculation. I hope reality is closer to your projection than mine.

They could even announce a price increase ahead of time to drive sales even more.

I was wondering what the best strategy might be. I concluded that it would depend on market acceptance. If demand is unusually strong, your suggestion might be the correct move as long as the increase is modest. Wouldn't want to kill the buzz before it truly got rolling.

 

[Ty]

Nothing wrong with positive speculation. I hope reality is closer to your projection than mine.



I was wondering what the best strategy might be. I concluded that it would depend on market acceptance. If demand is unusually strong, your suggestion might be the correct move as long as the increase is modest. Wouldn't want to kill the buzz before it truly got rolling.

When the Miata came out, Mazda wouldn't allow the dealers to raise the prices. That meant that you could go into the dealer and, if you were lucky, buy a Miata for $13,900. Then, if you were REALLY lucky, you could happen to be there when they came in and buy 2 at that price (my Dad and I considered it). Then, you could turn around and sell one of them for up to $35,000 and basically have a free car and money in your pocket. Well, that only lasted till production outstripped demand. I wonder if the Elio will be the same in that Elio will stand firm on price despite demand. Because, I've got to be honest with you, if someone waves $20,000 in front of me for my Elio, I'll just have to take that and wait for them to catch up with demand!

 

[Frim]

When the Miata came out, Mazda wouldn't allow the dealers to raise the prices. That meant that you could go into the dealer and, if you were lucky, buy a Miata for $13,900. Then, if you were REALLY lucky, you could happen to be there when they came in and buy 2 at that price (my Dad and I considered it). Then, you could turn around and sell one of them for up to $35,000 and basically have a free car and money in your pocket. Well, that only lasted till production outstripped demand. I wonder if the Elio will be the same in that Elio will stand firm on price despite demand. Because, I've got to be honest with you, if someone waves $20,000 in front of me for my Elio, I'll just have to take that and wait for them to catch up with demand!

I'll take $19,000 for mine. I wonder what it would bring on Ebay?

 

[Ekh]

Fun with numbers indeed. I thought Elio said they'd make 10% per base car and 20% on options (including the transmission).
Though, with probably about 90% of people buying the automatic (man, we've become lazy), that's still $110 profit for just that one option. Now, it is possible that Elio would eat into their "base" profits in order to keep close to their $6,800 price which would make for great press. Well, maybe they'd do that for the reservationists. Anyway, even making just 5% on the base and 20% on accessories, they'd probably do very well. Most people will probably get the automatic transmission and carpet at a minimum plus a couple of other accessories. Paul had originally said that the $6,800 price included $1,000 profit per vehicle. I wonder if the "$800 over $6,800" still has that $1,000 built in. IF it does, even if they are $800 over $6,800 in cost, they could back up to $6,800 and still make $200 per vehicle in profit. That isn't very much but they could surely do that for a bit to clear the reservations.

$1,000 profit per base vehicle plus $110 profit on each automatic transmission = $1,110 per car X 200,000 = $222M profit in the first year.

(By extension, each car sold with that Skyz system would add $400 in profit for each the Elio sold.)

Ty, you're right that the base profit was originally to be $1,000/ car, so I'm a bit off -- the underlying profit is 15%, not 20, but that doesn't undercut my basic point that the company is financially sound based on today's reservations -- if they can get the doors open.

I do remember reading that the basic cost of the Aisin automatic is between $500 and $600 -- which means Elio is making double cost on every unit. If the figure as to transmission cost is correct -- I think it was supplied by G-1, who is careful about such things -- that's an additional $500 / car. That's a 50% margin on that item, and a whopping difference to EM's bottom line. I used 90% as the acceptance rate for the automatic, but my digging around a few weeks ago suggests that it's between 93 and 95% for all vehicles offering a voice of trannies... even for sports cars, paddle shifters are in and clutch pedals are out. So that's a further little boost to the profitability of The Elio. If even only 3% of buyers (in addition to the 90% I claimed) buy the automatic, that's an extra $27.6 MILLION in profit... just from today's reservation holders.

This gets kind of scary, doesn't it?

 

[Sethodine]

As to the "$7600" inflated base price...

Based on the latest SEC filing from EM, that is the "Actual" sale price of the base car, if they are forced to operate at a low production run. But if they can hit their goal of 250,000 vehicles per year, then the economies of scale that come with that level of production will reduce the base price to $6800.

So the difference between the two price points doesn't have to do with being "over cost", it is just the realities of low production vs mass production. Assuming they hit their production capacity goal, then $6800 is already within their grasp.