Tesla has suffered a fairly serious setback today as the company announced that it cut its revenue forecast for 2012 because of a slow rollout of its Model S sedan. Shares closed down 10% on the news. (real-time quote)
(UPDATE ADDED: Sept 28)
It is not like we told you months ago this was going to happen; but we totally did.
If Only We Could Produce These As Fast As We Thought
Production updates for this quarter had come often from the company, but the numbers did not match up to Tesla's own lower guidance of 500 Model S deliveries by quarter's end, (down from 1,000 earlier) and 5,000 total units by year's end.
The company said in a 8-K SEC filing that it expects 2012 revenue in the range of $400 million to $440 million, down from its prior outlook of $560 million to $600 million.
The company is expected to deliver only about 225 Model S cars this quarter, and simple math would suggest they expect to now sell (at most) 3,000 Model S electric cars by year's end.
"We commenced production of our Model S in June 2012. We continue to ramp production of Model S at the Tesla Factory with the goal of producing the world’s finest automobile. The Model S is an all new vehicle which we are producing with new employees using new equipment. As our main focus is on quality, we have methodically increased our Model S production at a rate slower than we had earlier anticipated." - Tesla's 8-K statement on Model S Production
Tesla put the bulk of the blame on supplier and quality control issues.
A level of 5,000 Model S vehicles produced per quarter is seen as the level at which the company achieves enough margins to be profitable. Now, the worry is that Tesla will not be able to ramp up to this level until the company is almost through its pre-order reservation list which totals over 13,000; meaning it then has to prove its viability from ongoing demand, which at 5,000/quarter...seems like a hard bridge to cross.
Tesla, while stating that the reservations had increased by 1,500 since June also noted that cancellations rose in the third quarter as the company asked the first several thousand reservists to firm up, and configure their car for delivery. For the quarter, after cancellations, Tesla expects the net reservations/orders to increase by about 1,600.
Basically, the company needs to sell 5,000 every quarter to make 5,000 every quarter going forward, and they only 'sold' 1,600 new Model S sedans in Q3.
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Additionally, as we reported two months ago after listening to the company's quarterly conference call, Elon Musk said Tesla may consider raising equity at some point "to provide a cushion" and help fund vehicle development, but it won’t do so in the very immediate future.
At the time, we questioned how short of a time from the "very immediate future" was for Mr. Musk, as cash seemed to be fading fast at the company.
Unsurprisingly, Tesla also filed another form today (424B5) saying the company would be selling an additional 4,344,930 shares worth $128 million, with the company granting the underwriter a 30-day option to purchase up to an additional 651,740 shares of common stock, bringing the potential raising to about $150 million.
The CEO also says he has preliminary interest to pick up another 33,311.
UPDATE: Tesla said in a regulatory filing today that it now expects to sell 6.93 million shares @ $28.25 each, which is an increase of 2.58 million from what it reported on Tuesday. Tesla expects to receive net proceeds of $192.7 million, or $221.6 million if the underwriter, Goldman Sachs Group Inc. picks up its option
Tesla states that without raising this capital, it may be in violation of its loan agreement with the U.S. Energy Department when it comes to payments in 2013, and as such it will need to be amended.
“We currently anticipate that without raising capital in addition to this offering, we would need to seek an amendment from the DOE to modify the total liabilities to stockholder equity covenant for the quarter ending March 31, 2014"
Jess Evanson, a Tesla spokesperson said that the company “expects to be close to free cash flow break-even at the end of 2012’s fourth quarter.” Not exactly a ringing endorsement for the future.
Building electric cars from scratch is hard.