Relax…Tesla Doesn’t Need $6 Billion In Cash

Tesla logo

NOV 13 2014 BY ERIC LOVEDAY 34

Tesla Emblem On Model S

Tesla Emblem On Model S

Back in September, an analyst for Goldman Sachs declared that Tesla was effectively dead in the water if it couldn’t acquire at least $6 billion in capital over the next 11 years.  The analyst claimed that for Tesla to produce a truly disruptive electric car (presumably a reference to the Model 3), $6 billion or more would be required.

Here’s how Bloomberg reported the situation put forth by the Goldman Sachs analyst:

“…a Goldman Sachs Group Inc. analyst said the company may need at least $6 billion in capital, most of it over the next 11 years, if its electric car becomes a “disruptive” product.”

“The automaker led by Elon Musk is targeting production of 100,000 premium electric cars by late next year and has an eventual goal to sell at least 500,000 cars annually. The capital may be needed to fund growth if Tesla’s vehicles prove to be as popular as Apple Inc.’s iPhone or Ford Motor Co.’s Model T. Under such scenarios, production would range from 1.8 million a year to 3.2 million a year by 2025, Patrick Archambault, an analyst at Goldman Sachs, wrote today in a note.”

“With numerous projects laid out (as well as those not currently communicated) ahead for Tesla, we see a possible need for additional capital,” he wrote.

“Archambault, who has a neutral rating on Palo Alto, California-based Tesla, said the bulk of his estimate for the company’s capital needs would be for 2017 through 2025.”

The words of this lone analyst spawned a whole series of related articles in which various websites took the words of Archambault and basically believed everything the analyst declared.

But there’s one aspect overlooked.  While Tesla may desire $6 billion in additional funding and may even seek it at some point in the future, the automaker certainly doesn’t need it.

Just look at that market cap…$29.94 billion!

$29.94 Billion There For The Taking

$29.94 Billion There For The Taking

So, the money is there for Tesla.  Yes, we’re aware that Tesla may rather leave that $29.94 billion right where it is, but the automaker has used its market cap to fund operations in the past and it certainly could do so again.

So, as the title states, just “relax…Tesla doesn’t need $6 billion in cash.”  Tesla may want $6 billion, but want and need are words with entirely different meanings.

Sources: Bloomberg & Gas 2.0 & Green Car Reports

Categories: Tesla

Tags:

Leave a Reply

34 Comments on "Relax…Tesla Doesn’t Need $6 Billion In Cash"

newest oldest most voted
DaveMart

Is that claim the result of your cogitations, Eric?
I can’t see anything in your sources which says that, so it looks as though it is the result of your own financial analysis!

You say (or uncredited sources do):

‘Yes, we’re aware that Tesla may rather leave that $29.94 billion right where it is, but the automaker has used its market cap to fund operations in the past and it certainly could do so again.’

Perhaps you would explain how the market capitalisation pays for capital expenditure?

I am curious and I am sure Goldman Sach will be, as to your take on this thorny issue!

Chris O

I’m sure Eric Loveday appreciates your trademark arrogant and overly sarcastic tone like we all do on this forum davey boy! Your a real gem for this forum and no doubt great for traffic too!

Chris O

Don’t you just love the sarcasm;).

DaveMart

Anything of any substance to say, or just bleating on as usual, Chris?

Chris O

Well at least you are very honest about your contempt for both the authors and the other posters on this blog which is much appreciated!

(and I’m really getting the hang of that sarcasm thing of yours!)

DaveMart

So the answer to that is no, you have nothing at all to contribute to how stock price might relate to money available for investment.

I think the underlying point is that Tesla could issue more stock to raise funds. It would cost them nothing, and it wouldn’t hurt the share price if its for a project that the market believes in.

DaveMart
I agree with that Dan, and I was more bemused than anything. Financial analysis is usually done by professionals in that trade, and when I did not find one since I am not one myself asked where the notion that share price was in itself enough to cover the bill for investment, which AFAIK has only a very limited amount to do with it. Since it appears though that this was instead a comment by a non professional which indicates a missunderstanding of how it works, then perhaps I should comment to try to clarify the relation of stock price to investment. It is pretty much like owning a house, which may be worth a lot of money, but won’t in itself pay for the new extension. Of course the high share price means that existing shareholders, principally Musk, could sell shares and raise money, and if money were needed what would actually happen is that there would be a share issue, which would likely dilute shareholders other than Musk. So there would be a big hit to how much of the company most common shares would be worth, which when a stock is rising in price is not so… Read more »
DaveMart

IOW Tesla has no immediate need to raise cash for investment, but not because of the share price.

liberty

If tesla is growing and has a market cap of $30B, raising $6B in convertable bonds should not be a problem. Issuing new stock would be necessary if tesla’s market cap was not as strong.

Mint

Dave, I’m not sure is you understand how stock issue works.

If a $30B company raises $10B in cash by issuing stock, it will now be worth $40B (to a first order approximation). The reason is simple: the shareholders (new and old) own the original company plus $10B in cash. Dilution refers to the a drop in the percentage ownership that a share represents, not a drop in value.

The only reasons share price would go down is if the new shareholders valued the company at a lower figure (which is possible), or if the company is not expected to get good return on that $10B (which is why companies can’t do this endlessly).

To summarize:
A) $30B is an important valuation for raising $6B in capital, as a $1B company could not do the same thing
B) Leaving that figure “right where it is” implies no new shares will be issued, not that it directly pays for capex

Big Solar

Dan, that is correct. If we take a look at GM however… Hahaha!

James
I root for the underdog. OK, I’m a sucker for those movies where the least likely character or characters ends up foiling much more powerful foes and saves the day or gets the girl. I love all this: “Tesla is going to fail” stuff we get weekly from all sorts of “experts”. I especially love the: “There is no way in *ell Musk can do this!” smatter. They say it, people print it – Musk keeps pushing on breaking barriers. “Oh, but Musk promised THIS…and Musk promised THAT…and he’s late!…He’s never going to succeed! Musk is lying to us all!”, etc. etc. etc. Yesterday somebody said I hail Tesla as a god, or perfect or….? Not true. I do herald Musk and Tesla ( and Space-X, and Solar City ) as groundbreakers, risk-takers and doing things LITERALLY NOBODY ELSE HAS TRIED TO DO. He has drawn a line in the sand – challenged multi-zillion-dollar legacy auto companies to match him – and what he gets is i3 and a million dollar e-Tron! He laughs. I laugh. American is messing with the established gas-addicted, SUV-addled car companies. If he wins – we win. Bottom line. Will he win? Will he force… Read more »
alain

plus 1,as Mr Burn would put it (excellent)!

Anon

Very nice screed. 🙂

James

Well thank you….I think.

Screed = tedious, right?

Tedious?!!! Really?

Thanks for the gripe – how about what I actually said? No opinions. What’s up with that?

Rick Danger

I’m in, +1 🙂

Lustuccc

Make that +2

pjwood

Eric, better to say “they can borrow cheaply”.

Tesla needs 6B cash over the next 11 years?

Did you just see how easy they raised 2B earlier this year? It was oversubscribed – everyone wanted a piece!

While I don’t think they’ll be able to get that entire 6B out of cash flow from vehicles (selling 250K vehicles at an ASP of 60K with a 20% GM is 3B a year in gross margins to cover SGA, debt, stores, service/warranty, R&D, superchargers, etc.), they should be able to self-fund a lot of their growth while maintaining their attractiveness to investors and lenders.

$2 billion was raised before Tesla got the junk bond rating from S&P. Now, Tesla’s story is wearing thin, and it could be much more expensive to raise new capital.

Nick

From the same company which rated Lehman Brothers debt AAA.

They’re not exactly oracles over there.

Mint

Tesla was unrated by S&P before getting B- from them, i.e. even risker.

If you’re not investment grade – and no company with such a limited history of revenue is – then you’re “junk bond” status.

taser54

Tesla should be able to raise that money easily, as stockholders and conv. bond holders have deemed it a long term buy (rightly or wrongly)

ffbj

Many good points here about why Tesla is not in money trouble. Actually no one has mentioned how cheap money is atm and has been for the last 5 years. It has been the best time in american financial history to embark on really expensive projects, that can find financing.

Michael

It is clear that Eric Loveday doesn’t understand market capitalization and capital expenditures.

The 29 billion figure is not money available to Tesla. It is the total value of all the stock that investors hold. This is stock that’s already been issued and sold by Tesla, and the number is simply the market value of all the shares outstanding.

Tesla received all the money they’re ever going to get from the sale of the stock, when they first issued it. Now it’s someone else’s property, offered for sale or purchase in the open market, so Tesla doesn’t get any more money from this.

Can they borrow? Sure, but that’s what the analyst was talking about; the need to raise new capital for investment in production capability.

Personally, I think any danger in Tesla’s future is relatively small, but it does exist. They will likely need additional capital to meet their production goals and there is a chance that when Tesla needs additional capital, no one will want to invest.

Mr. M

Excellent explanation! also Dave Mart issued this above correct, but you are more clear.

BraveLilToaster

You hit the nail right on the head with this one. It’s pretty clear that Eric doesn’t know what he’s talking about.

krona2k

I was hoping to see a post like yours. There’s really no need for DM’s arrogant, sarcastic and negative posts, but I doubt they’re going away any time soon.

Rick Danger

If, as this analyst suggests, the demand for Tesla autos were to explode into the 1-3 million range, I don’t think they will have a problem getting any financing they need.

Lad

This analyst works for Goldman; Tesla is a stock company; Goldman is a stock market bank; his analysis does not mean s**t because he is directed by Goldman as to what to put in the report in order to move the stock the way Goldman wants. Stock banks do this all the time and The SEC does nothing….know your source!

Dave K.

Never bet against Elon, everyone who does is always wrong. I thought Tesla would fail producing the Roadster, it didn’t The model S was delayed, everyone thought Tesla was in trouble, now the model S is a huge success. Over at SpaceX their first 3 rockets blew up, now they are supplying the ISS. Never bet against Elon…

Alex

I am sorry but please refrain from faulty and simplistic financial analysis if that is not your world (which it is not). Keep this site to updates about EVs and not this.

JR
I would not listen too much to Goldman Sachs, it’s just an investment firm trying to move around the public opinion. Goldman Sachs is after the short quick rewarding investment. It sounds to me as if Goldman Sachs is missing inside information about Tesla and therefore they send some test balloons FUD out to see if they can affect the share price create a little panic and get a foot inside the board of directors and get a little inside knowledge. Goldman Sachs can with Tesla easily collect 6 billions $ or more and give themselves a bonus of 1 billions or more for there trouble, they know this and is eager to begin, Goldman Sachs worst fears is being left out, and they are panicking if they don’t have control, remember Goldman Sachs is not a company that is interested in technology but only the control of capital flow for their own benefit Tesla has enough money, well Tesla has just repaid a loan of 465 millions $, it would not do so if they were lacked money. Remember what happened to Edison and Tesla 150 years ago, be careful who you let in, when you count your fingers… Read more »