Bloomberg’s Tesla “Cash Burn” Tested As Make-Or-Break Q2 Closes

Red Tesla Model 3 driving

JUN 24 2018 BY CARLO OMBELLO 22

Bloomberg’s picturesque, if superficial, portrayal of how Tesla invests its money

It is make-or-break time for both Tesla and its detractors, as a historical first half of 2018 comes to a wrap in the next few days. A Tesla news overload through the past year has resulted in a wild and passionate debate over the future of the company that is changing the world car industry for good.

Perhaps most resounding of all is the “cash burn” mantra that many media outlets such as Bloomberg, as well as Wall Street people, have kept spreading on the web, TV and newspapers as Elon Musk pushes through Tesla Model 3 production hell. All of this noise and doubts should now come to an end as forecasts get replaced by real numbers at the end of the second quarter. What to expect?

*This article originally appeared on opportunity:energy. Author Carlo Ombello graciously shared it with InsideEVs.

A flurry of updates is anticipated, whether in the official Tesla Q2 reports to investors or through a highly likely series of Twitterstorms by Elon Musk (short sellers are forewarned). Let’s not forget that separate important announcements from Tesla should not be ruled out in the weeks to come, leading to a Q2 earnings call in early August that promises fireworks. All of these will stem from the unprecedented amount of capital that Tesla has increasingly invested (or burnt, according to some) in order to thrust itself to mass-market production of electric cars.

Vehicles production will undoubtedly be making headlines first, as everyone’s obsession with Model 3 production ramp numbers is bound to find some relief in real figures. No more shaky forecasts or wild guesses. All of this was made significant as Tesla repeatedly missed its own forecasts since last Summer, delaying a half-target of 5,000 Model 3 weekly units by six months to end of June.

In a previous article, I anticipated Q2 production between low and high scenarios, which would result in anything between 25-38,000 units produced from April to June. The cumulative production is important as weekly numbers have so far been a very unreliable metric (check out Bloomberg’s Model 3 tracker for more confusion).

It seems likely that some 26,000 units will have been produced by 30th of June, for a weekly average of 2,000 units. If confirmed, it’s good news as it would clear uncertainties on the ramp progress. If not reached, it may cast new doubts. Any higher numbers will inevitably look very positive, and a late June sustained production spike could very well be the most meaningful piece of news.

With the new tent assembly line at Fremont now operational, weekly rate updates are also paramount for the overall sentiment, therefore we can expect a focus on June weekly data, as well as anticipated production numbers for July and longer term. These figures will set the media on fire. So how about Model S and X instead? While Model 3 has hijacked the news, the flagship models should not be disregarded, as Tesla’s expansion is also dependent on their continuing success. Many Tesla bears will look into these models to find possible weaknesses.

Bloomberg’s Tesla cash flow chart shows a lot of red.

Next on the agenda is cash flow. Bloomberg’s famous chart above highlights what many see as a very bearish indicator for Tesla, now allegedly left with a thin lifeline before going back to markets begging for more cash. One could well note that this, in fact, an indication of the opposite, with the company pushing for the final breakthrough following a 10-year race to electric dominance, which inevitably requires hefty investments before profitability. Q2 earnings won’t be known until later in August, however, it seems probable that Elon Musk will compound any good news with the financial background to suit via Twitter, perhaps hinting again at Q3 and Q4 forecasts that are sure to thrill Tesla shorts.

Profitability is the word, and if the second quarter may well result in yet another period of deep red (possibly the worst), Musk has now repeatedly promised a shift as soon as next quarter, backed by recent news of layoffs and restructuring. Possible details on Model 3 break-even levels could also send shockwaves in the markets, as Elon Musk is clearly intent in proving shorts wrong with recent warnings of a “next level short burn of the century”. Should Elon Musk for once be timely and overdeliver on the above, then his Boring Company flamethrowers will come in handy.

Is that it then? Not even close, more news could come from many sides. Progress on Tesla energy could turn out to be unexpectedly interesting, same with news on battery costs, which are being slashed to a level that Tesla competitors are unable to match. To add more fuel to the fire, an update on new plants in Europe and China is imminent, as well as on the superchargers infrastructure. Oh, and what is that new expansion lot at the Nevada Gigafactory 1? Or, how about a technological breakthrough to widen the gap with competitors and increase Tesla’s edge in the EV and energy market.

We also have to hear about the Semi, the new Roadster, the Model Y and who knows what more, all of which could lead Tesla to exponential growth if well directed by Musk and his core team. After all, mountains of cash have been “burnt” and we shall soon see if they’ve actually turned to ash or maybe something more substantial. Meanwhile, we could very well be surprised with announcements on joint ventures or new investors joining Tesla’s battle for sustainability with further ideas and capital.

Either way, history is in the making for Tesla, for the future of the car industry and many, so many stock market speculators. The show starts next week. Stay tuned.

Source: opportunity:energy

Categories: Tesla

Tags: , ,

Leave a Reply

22 Comments on "Bloomberg’s Tesla “Cash Burn” Tested As Make-Or-Break Q2 Closes"

newest oldest most voted
Micke Larsson

With factories to be built in the US, China and Europe and the Model Y and truck being put into production and ramped up there is so much cash still needed before the dust can start to settle.
Tesla will be on the brink for at least another five years or so.

But…they will probably have a couple of good quarters reassuring investors before the burning continues.

Darren

“With factories to be built in the US, China and Europe and the Model Y and truck being put into production and ramped up…”

Of course you realize that everything you just wrote paints a picture of a successful and rapidly growing company. Yes? With hundreds of thousands of preorders for one vehicle alone, plus preorders for the semi, the roadster, and eventually the Model Y, plus the charging infrastructure to power it all, this bodes well for Tesla. I have no doubt that Tesla will exist in ten years, and will solidify it’s place as one of the “big three” in place of Chrysler.

Micke Larsson

I do. I’m rooting for Tesla to keep pushing the limits for quite a while instead of settling for a slow and more organic growth with numbers in the black instead of in the red…

earl colby pottinger

I notice they plotted the cash spent, but not the assets gained.

Using their methods I am headed to bankruptcy! The money I spent on buying property in South River – gone – the money I spent on solar panels – gone – the money I spent of buying a summer home – gone – the money on the condo in Florida – gone – the money spent buying Tesla stock at $189 or Canopy at $7.98 – I don’t have the money only the stocks. Money in GICs that do not mature for another two years – all that money gone!

I am doomed, Doomed, DOOMED – I tell you because according the Bloomberg all the assets I gained don’t count – only the money I spent.

FOOLS!

Gasbag

Q2 is not a make or break period. Q3 & Q4 may be. Q2 results are likely to be worse than most are expecting. Expect one time charges and write offs associated with re-org and layoffs. You can also expect deliveries to be lower than hoped for as thousands of Teslas produced in Q2 will not be delivered until after July 1. The priority is for Q3 to show profitability not Q2.

Carlo Ombello

Hi Gasbag, indeed that’s also what I anticipate, Q2 to likely be the worst quarter in red before Q3 and Q4 possibly in the black. 🙂

Pushmi-Pullyu

Yeah, the “make-or-break” claim in the article is just a Bloomberg journalist writing a dramatic “story” rather than sticking to the facts.

Tesla can always scale back on the pace of expansion, if they need to. Thank goodness most or all signs point to them not needing to!

Go Tesla!

Doggydogworld

Q2 make or break issue is production rate. They have to get to 5000/week to have a chance at profits in Q3/Q4.

TeslaPlease

Go Tesla Go!!!! With the high profit margin Model 3, Tesla will surpass them all

New factories to be built in the US, China and Europe
New Model Y
New Semi
Next Generation Alfresco-Style Low Cost / High Yield semi-enclosed production line

Poor dumb GM and Ford. All they can do is stand by and watch Tesla build the future while they reach record truck sales in 2018

Sales Numbers – Full-Size Mainstream Pickup Trucks – January 2018 – USA
JANUARY 2018
F-SERIES – 58,937
SILVERADO – 40,716

Nix

BishPlease — Thanks for reminding us how Ford and GM are painting themselves even deeper into the Truck/SUV corner as they move towards killing their passenger cars, dooming themselves the next time there is an oil/gas price swing:

“Ford getting out of most car production by 2020”
http://www.todaysmotorvehicles.com/article/ford-exiting-car-business-042718/

“GM might cancel 6 car models as it loses ground in the industrywide decline”
http://www.businessinsider.com/gm-cancel-car-models-2017-7

Let me guess, you don’t think we will see another swing in gas prices, the same way people though housing prices weren’t going to swing in 2006? So you don’t understand how the massive decrease in model diversification is deadly for their future?

RTW

With Aussies paying _twice_ as much per gallon for fuel as Americans pay, we’re counting the days until Model 3s arrive on our shores. While our federal government is mired in fossil-fuel worship, Australians will welcome M3s, even at a premium cost. At that point, many will also purchase the PowerWall 2. Appreciated the comment “…changing the world for good…” Couldn’t have put it better.

Mark.ca

Does your medical care giver know your are off your meds? What’s with this constant compulsion to troll?

Pushmi-Pullyu

“Poor dumb GM and Ford. All they can do is stand by and watch Tesla build the future while they reach record truck sales in 2018”

You Tesla bashers sure are getting quite a workout in moving those goal posts! Only a year or two ago, you were dismissing Tesla’s production as nothing compared to sales of even an average model of gasmobile. Now you’re comparing one of Tesla’s models to the two top-selling gasmobile passenger vehicles in the entire USA!

What are you gonna do in another year or two, when the Model 3 is outselling every model of gasmobile in the USA? Hmmm?
😆 😆 😆

You need to try a lot harder in moving the goal posts, Mr. Tesla Basher. Tesla’s production is accelerating even faster than you can move those posts!

carcus

It’s the aero, stupid —

No other ‘BEV form’ has a better chance of commercial success than the model 3.

Not a CUV.
Not a pickup.
Not a semi.

It has THE best chance of conquering range anxiety and proving the BEV concept with current battery technology.

— otherwise, it’s PHEVs and BEV city cars for the foreseeable future (until solid state batteries arrive). (imo, of course)
/I’ve been wrong before, so be sure to subscribe, and leave your thoughts in the comment section below …

Another Euro point of view

I am not sure what they mean by cash burn but if it is the constant diminishing of cash at hand (current assets) it means not much, at least for a company that is still growing fast. What matters is what is done with this cash, if it is mainly used in R&D or invested in fixed assets or partly to cover operational losses. Way too technical to be addressed in mainstream media I am afraid + lack of granularity of Tesla’s financial reports does not help.

GuyMan
I generally agree, but Tesla hasn’t exactly been a “keen financial steward” with the M3, between robots and conveyors paid for and removed, and then the air freight for 6 plane loads of automation for G1, it just feels like everything is rushed, and not well planned in the manufacturing execution areas. I’m not sure if they are still “new” at high volume manufacturing, but auto manufacturing is not an unknown field, and after all the talk of the “machine that makes the machine”, it just doesn’t feel like a smoothly executed project (M3). The cash spent (and not getting any return) on some of the above – Along with the fits/starts of the M3 line in Q2 (which I agree needed to be done), just sure doesn’t feel like there was much thought besides, just turn the line speed setting “up to 11” – https://youtu.be/4xgx4k83zzc – Typically machine cycletimes, part handoffs, layouts in 3D are all modeled in advance in CAD software, and then typically there are FAT (Factory Acceptance) and SAT (Sit Acceptance) tests, that just didn’t seem to happen in this case. There is a reason the automation industry has development some standard project management milestones. My… Read more »
floydboy

Catch All Shorts Hoping Before Unimaginable Reality Nestles

GuyMan

I see what you did there – The N was a bit of a stretch…

ffbj

Maybe, Nears.

SJC

Don’t run short of cash with a growing company, don’t tick off investment analysts.

TM

So, when Tesla introduces their pickup truck, that will be the beginning of the end of F and GM.

Brian

No but Ford and GM will have to offer electric pickups. 3x fuel cost will mandate the transition to EV for most businesses.