Securities And Exchange Commission Form 1-k - Filing Date: 2016-04-29

[Johnny Acree]

In this latest SEC filing, it looks like EM has built in just under $2k of profit in each base vehicle (Lord only knows the mark up for options), but I have no question that the MSRP is just that, a suggested price.

I also think EM points out in the SEC filing that they get it... they know who butters their toast, that reservation holders, especially a core group, represents one of their largest funding sources. I do see the 80/20 rule applying, and it will be interesting to see if EM caters to that group to attract others.

As EM moves through, and out of the coming testing phase, how will they fan the flames to entice more reservations I think will be interesting.

EM is not making $2000.00 profit.

What is a BOM?
BOM is the acronym for bill of materials. A BOM is a listing of the quantities of each of the materials used in manufacturing a product.

Industrial manufacturers are likely to have an enormous number of BOMs. Each of the BOMs will be a very detailed list of all of the quantities of every material used in the various steps of manufacturing each part or product.

To visualize a BOM, think of a bakery that produces only pies. Each pie's BOM will list the ingredients in the pie's recipe. Each BOM will list the number of pounds (or other unit of measure) of the specific fruit, the quantity of a specific sugar (or other sweetener), the quantity and type of cinnamon, the quantity of nutmeg, the type of crust. There will also be a BOM for the pie crust. The pie crust BOM will specify the quantity and type of flour, the quantity and type of butter (or oil), the quantity of salt, etc.

BOM does not include all the overhead.


Overhead costs tend to be fixed, which means that they do not change from period to period. Examples of fixed overhead costs are depreciation and rent. Less frequently, overhead varies directly with the sales level, or varies somewhat as the activity level changes.

The other type of expense is direct costs, which are those costs required to create products and services, such as direct materials and direct labor. Overhead and direct costs, when combined, equal all of the expenses incurred by a company.

EM has not changed the rules.

I am not an accountant, I just Googled the terms. This is what I found.

 

[wizard of ahs]

WOW.............thanks for the info.............BUT........it gave me a headache

 

[Ekh]

I remember reading some place that Elios built in profit per car was on the order of $500 on the base car plus whatever they get for options. That seems much more in line with their general way of operating than two thousand bucks per car would be. But that $500 is net profit I believe. That is it includes all the costs as you have detailed them above.

How they could actually derive such a number since their overhead costs are really far from clear I'm not sure. But it seems a reasonable sort of target to me.

 

[Marshall]

WOW.............thanks for the info.............BUT........it gave me a headache

It depends on what you interpret as profit. There is Gross Profit and Net Profit. Then there is cash flow projections. Which expenses and revenues are put in which budgets is partly legislated and partly the reason you have really good accountants who still make what some will call mistakes and others will call creative.

I'm old school and think in terms of Capital cost as primarily fixed costs and Production cost as primarily variable costs and are usually closely related to units produced. Then there are rents to pay and depreciation to offset taxes (often an entirely different set of books).

All that does is confuse the issue. But the gross profit should be sufficient to cover the proportional expenses, rents and loans in short order with a healthy amount left to further reduce the accrued startup costs.

ps don't think of accrued overhead as a lump sum. Think of it as your mortgage. You just need to be able to make the payment, not pay off the loan until it is to your advantage to do so.

 

[Marshall]

I remember reading some place that Elios built in profit per car was on the order of $500 on the base car plus whatever they get for options. That seems much more in line with their general way of operating than two thousand bucks per car would be. But that $500 is net profit I believe. That is it includes all the costs as you have detailed them above.

How they could actually derive such a number since their overhead costs are really far from clear I'm not sure. But it seems a reasonable sort of target to me.

I think this is a reasonable Net profit projection before discounts and perhaps based on 100,000 units a year which would increase substantially with economies of scale if/when they move into the 250,000 range. But that's a guess.

They can exist for a while with just an operating profit, before they can start paying off the accrued debt.

ps At the price point for Elio vs their competition, I suspect the next big thing will be financing to tool up a second or even third or fourth production line. From a square foot perspective, you might have space for four lines at Shreveport, but the reality is often different depending on how the space is laid out.

But Paul can cross that bridge when he gets there.

 

[John Painter]

EM is not making $2000.00 profit.

What is a BOM?
BOM is the acronym for bill of materials. A BOM is a listing of the quantities of each of the materials used in manufacturing a product.

Industrial manufacturers are likely to have an enormous number of BOMs. Each of the BOMs will be a very detailed list of all of the quantities of every material used in the various steps of manufacturing each part or product.

To visualize a BOM, think of a bakery that produces only pies. Each pie's BOM will list the ingredients in the pie's recipe. Each BOM will list the number of pounds (or other unit of measure) of the specific fruit, the quantity of a specific sugar (or other sweetener), the quantity and type of cinnamon, the quantity of nutmeg, the type of crust. There will also be a BOM for the pie crust. The pie crust BOM will specify the quantity and type of flour, the quantity and type of butter (or oil), the quantity of salt, etc.

BOM does not include all the overhead.


Overhead costs tend to be fixed, which means that they do not change from period to period. Examples of fixed overhead costs are depreciation and rent. Less frequently, overhead varies directly with the sales level, or varies somewhat as the activity level changes.

The other type of expense is direct costs, which are those costs required to create products and services, such as direct materials and direct labor. Overhead and direct costs, when combined, equal all of the expenses incurred by a company.

EM has not changed the rules.

I am not an accountant, I just Googled the terms. This is what I found.

In EM's most recent filing there's all kinds of juicy new info, from an indication that they might need more money to fund the E series build, to they need significantly more for production set up, to the current projected retail price of their vehicle is $7,600 and that they have a BOM cost target of $5,654 for a production run of 125,000 vehicles. The original question I had was basically... isn't the difference between cost and retail sale price "profit"? If so, that's $1,946.

 

[slinches]

Jeff, that $1946 difference has to also cover the cost of the machines/tools and pay the employees salaries, pay interest on debts as well as all of the other operational costs. I wouldn't be surprised if that total came out to about $1446 per vehicle (~$180M) for 125,000 vehicle production run. Since those are relatively fixed costs (and assuming the reduced BOM costs roughly cancel the increased operating costs), then amortizing that same ~$180M over 250k vehicles and the $500/vehicle net profit gives a $6877 retail price. Not too far off from the $6800 target.

 

[John Painter]

Jeff, that $1946 difference has to also cover the cost of the machines/tools and pay the employees salaries, pay interest on debts as well as all of the other operational costs. I wouldn't be surprised if that total came out to about $1446 per vehicle (~$180M) for 125,000 vehicle production run. Since those are relatively fixed costs (and assuming the reduced BOM costs roughly cancel the increased operating costs), then amortizing that same ~$180M over 250k vehicles and the $500/vehicle net profit gives a $6877 retail price. Not too far off from the $6800 target.

Let me rephrase that for Jeff.... why, necessarily, wouldn't the cost of labor be included in direct assembly?

 

[slinches]

Sorry, John. (I'm bad with names)

The BOM is literally a bill of all of the purchased materials/parts which make up the vehicle. That does not include the assembly and operational costs of the business intentionally. They break it out that way because the BOM costs are roughly constant per vehicle, whereas the operational costs are mostly fixed, independent of the number of vehicles produced. Doing that allows for easier financial calculations/projections based on varying sales numbers.

By the way, I'm guessing that the difference in funding needed in this latest filing is at least partially due to planning to move as quickly as possible into the 250k vehicle per year production rate. Even the rather pessimistic view that these sort of documents portray still indicates demand is plenty high enough to support that level of production.

 

[AriLea]

Let me rephrase that for Jeff.... why, necessarily, wouldn't the cost of labor be included in direct assembly?

I'm going to suggest the BOM is directly related to each vehicle out the door and the other costs are not directly related that way. For example, tooling or facilities you have used for the first year, can be used again on the second year and later, the direct cost to production depends on final sales, what you plan to produce and when, and just how you chose to write off investments using various accounting methods.