Tesla’s Tried-And-True Method For Raising Funds Works Again
Honestly, with Tesla, it’s all about the hype.
What can we say … it works. Tesla doesn’t do anything like a traditional automaker. Although Musk continues to successfully utilize a tried-and-true form of financing to get through the company’s early stages and current Model 3 “production hell.”
It comes as no surprise that some Tesla skeptics have referred to Musk’s ways as a Ponzi scheme. However, it’s not as if the automaker hasn’t actually delivered vehicles. It just tends to struggle with timelines. Thus far — at least for the most part — the popular CEO has delivered on most of his promises. Doubters seem surprised when he’s able to pull off his crazy ideas, but he does it, albeit slowly.
The recent Tesla Semi event was just another example of how the company takes people’s deposits way ahead of time to generate a nice pile of funds, with a promise to deliver the products years later. The thing is, people are willing to pay and wait. The number of customers eager to give Tesla their money for a product that’s not even in production (and may not be for years) is staggering. The company is well aware of this and banks on it, literally.
Not only are corporations dropping large deposits ($5,000) on the automaker’s electric semi, customers have already started placing deposits of as much as $50,000-$250,000 for the all-new second-generation Tesla Roadster (which wasn’t even previously announced to be a part of the Tesla Semi event). The surprise factor surely upped the ante for Tesla.
These vehicles won’t even go into production until 2019 0r 2020, and judging by Tesla’s track record, it could be even later. People that aren’t throwing money at the Silicon Valley automaker, along with some analysts and journalists are skeptical of Musk’s business tactics. However, if people are willing to pay and wait, and Tesla promises to eventually deliver, there’s really no harm done, right? If you don’t trust the situation, don’t pay in. KeyBanc Capital Markets analyst, Brad Erickson, told clients after the recent event:
“Elon Musk just figured out a way to avoid banker fees for a several hundred million dollar capital raise. [The Roadster] looked incredible and should be a meaningful force to raise some incremental capital for the company.”
David Kudla, CEO of Mainstay Capital Management, sees it differently:
“Here’s another event to wow the audience while he’s struggling to build the Model 3. The Roadster is beautiful and the technology is extremely impressive. But we have to look at the business overall. When will he make money?”
Cowen and Co. analyst, Jeffrey Osborne, shared in a recent report:
“All last night’s event did was add to Elon Musk’s shopping list of things he needs to spend money on at a time when the company is having difficulty making its base vehicle (Model 3) and its equity and debt has traded off.”
Time will tell whether or not Musk and company can pull all of this off and come out on the other side as a truly successful automaker. At this point, it’s “whatever works.”
Source: Automotive News