Tesla’s “No New Capital” Needed Comes Under Scrutiny

Tesla CEO Elon Musk

APR 28 2018 BY DOMENICK YONEY 40

Elon Musk, CEO of Tesla and Twitter grandmaster, is well known for making rosy predictions that don’t always pan out, and now that reputation may be catching up with him.

Despite recently making the bold prediction that the California automaker will be profitable in the 3rd quarter of this year (!), not only is there doubt among financial analysts that this will be the case, they also don’t seem to trust the entrepreneur’s pronouncement that the company will not need another financial raise this year.

Their misgivings make sense if you consider everything going on with the automaker right now: it’s vastly behind previous production estimates for the Model 3, and so the revenue associated with those cars that will only be built much later is also delayed; it’s still expanding the Gigafactory; it needs a factory in which to build as many as a million Model Y crossover a year; Semi will also need capital expenditure ahead of production and a place to build it; ditto Roadster; where’s my Solar Roof?, etc.

Last quarter’s call – Tesla Call Highlights Include Model Y Production & Semi Plans

Tesla

Tesla CEO Elon Musk

Automotive News spoke to several analysts from different firms and the doubt on display is like a broken record. It’s all about cash flow, and revenue estimates, with the only disagreement seeming to be about the degree to which Tesla’s cash — it started the year with $3.37 billion — will fall below the billion-dollar cushion mark. Here’s a quick look at what some of them are saying.

Colin Langan of UBS, who we expect to be on the Tesla financial call this May 2nd, sees debt refinancing and accrued liabilities for 2018 sucking up $1.2 billion, and thinks the automaker’s cash could dip below $1 billion around the end of June due to a $1.6 billion negative free cash flow in the first six months of 2018. Put him down as firmly in the camp that believes there will be a 2018 cash raise.

Unnamed analysts from Bernstein, likely Max Warburton or Toni Sacconaghi, think that negative cash flow could be as high as $1.8 billion.

One-time Tesla super-bull Adam Jonas of Morgan Stanley esttimates the cash burn to be a little lighter at $880 million, leaving a $1.3 billion cash cushion. Said he in a recent note, “Tesla may not ‘need’ to raise funds, but many investors expect that the company will very much ‘want’ to.

Jeffrey Osborne, who works for Cowen & Co. weighed in on Tesla’s past performance predictions, saying in his own note, “The company’s financial predictions may be losing credibility within the financial community.”

Andrew Walker from Rangeley Capital, which holds a small short position says, “There are a lot of moving parts there. It’s just so many questions and such a black box, it’s very difficult to determine going forward.”

So overall, there’s certainly not a lot of optimism among this group of skilled observers that Tesla will live up to either Musk’s production pronouncements or financial position predictions. Certainly, and as always, we are looking forward to this coming Wednesday’s financial disclosures and call with some of these same gentlemen. Will Musk have an evidence to back up his forecasts or will they be revealed as fanciful? Stay tuned.

Source: AutomotiveNews

Categories: Tesla

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40 Comments on "Tesla’s “No New Capital” Needed Comes Under Scrutiny"

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Dav8or
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Dav8or

There must be some Chinese venture capitalists over in China salivating right now. But they always say- don’t bet against Elon Musk… until the day they don’t say that anymore. Who knows? There’ll probably be tweet storm coming and that’ll fix things.

Rick
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Rick

are you sure that they are “over in China.”

Dav8or
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Dav8or

The ones with the most money and eagerness to take risks are.

Jim Whitehead
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Jim Whitehead

The Great and Powerful Musk, like showman Oz, usually booms the truth but is misunderstood. He words need to be parsed carefully. If Musk says Tesla needs no more capital this year, he may be right. Tesla may show a profit this year on the Model 3, to spike the stock, so its easy to raise money next year by selling more shares. Why? To start building a new factory in China and another factory in the US to build the Model Y and the Tesla Semi.

Testa
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Testa

They will have to borrow again and it will be expensive. The question is will this effect the Tesla strategic vision. They need 250K Model 3’s/yr to generate free cash flow (money to service their debt). They’re getting there but at the same time building a reputation for poor quality. A year from now the mass market producer goal may be out the window in favor of great (expensive) specialty cars. Should be interesting.

Nix
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Nix

mass market producer “goal”? Tesla is already a mass market producer. The Model 3 has already exceeded the Audi A4 in sales in the United States. And is on the path to rocket to the top of the small/medium US Luxury car sales leader board with the Model 3 in coming months. Likely breaking into the top 25% of ALL cars and trucks sold in the US. (all numbers based on goodcarbadcar stats).

Are you saying that not a single small/medium luxury car sold in the US is a “mass market” car, and that 75% of all car/truck models sold in the US are also not “mass market” cars?

Willem-Alexander
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Willem-Alexander

> building a reputation for poor quality

Looking at the reviews of the Model 3, the opposite is being said, except for the odd minor issue. Most reviewers are ecstatic about the car, and they would not be if it was of poor quality.

Who would pay $60,000 for a “poor quality” car? No one.

rad
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rad

2500 per week take delivery of a Model 3. That shows someone trusts the quality.

TeslaPlease
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TeslaPlease

When you cannot test drive the car before purchase, have very little time to inspect / reject for quality , and have waited 2+ years for purchase – this is far more about A LEAP OF FAITH AND HOPING FOR THE BEST.

Pushmi-Pullyu
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Pushmi-Pullyu

Thank you. That “building a reputation for poor quality” comment definitely comes across as trolling, rather than an honest opinion. At the very least it’s so biased that it doesn’t even remotely reflect reality.

Here’s the reality: Year after year, Tesla is #1 in Consumer Reports surveys for customer satisfaction among car owners.

Nix
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Nix

Which one of those analysts successfully predicted Model 3 production by the end of 2017?
Which one successfully predicted Model S/X sales over a quarter of a million by 2017?
Which one predicted TSLA hitting $100 more than half a year out? $200? $300?

None of them.

Here is the math they used in the source story, this should give you an idea on how out of touch they are:

“5,000 Model 3s per week priced at $44,000 would yield revenue of $2.64 billion per quarter, ”

Tesla doesn’t sell a $44,000 dollar Model 3 currently at all, much less having the average sales price be $44K. This is an example of why they continue to get everything wrong over and over. They are talking 2018 numbers, and using a price statistic that couldn’t possibly happen until 2019 at the earliest. In fact, the average price of the Model 3 will actually go up as Tesla releases the AWD version in July.

TeslaInvestors
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TeslaInvestors

Adam Jonas originally predicted ~2200 Model 3 for 2017. But he keeps changing the numbers when he has to sell more TSLA to his clients.

Nix
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Nix

Wrong. He originally predicted no Model 3’s until late 2018. It wasn’t until he was proven wrong that he changed his numbers. This was reported right here on Insideevs, and I’ve put the link in below. He’s been wildly LOW on his predictions of the Model 3, and yet he is regarded as the most bullish of major Wall Street analysts.

Gasbag
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Gasbag

“But he keeps changing the numbers when he has to sell more TSLA to his clients.”

Elon kept changing his numbers also and Adam and I have consistently been more accurate than Elon.

Gasbag
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Gasbag

“Which one of those analysts successfully predicted Model 3 production by the end of 2017?”

Jonas predicted 2,000 model 3s produced in 2017. He pretty much nailed it.

Nix
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Nix

Only after his original estimate of none before end of this year was proven wrong

Then he waited until it was close to the end of 2017 to come up with the 2000 number

He was wrong for a year and didn’t correct his error until the year was almost over

Bill Howland
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Bill Howland

Maybe if he doesn’t need any ‘NEW’ capital he’ll take Plenty of ‘OLD’ capital Instead.,

kbm3
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kbm3

6 months late is “vastly behind production estimates”?

wavelet
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wavelet

Tesla’s plan of record was production of 500K vehicles in 2018 (total, all models, for all regions, not just USA) . Tesla never explicitly changed that goal, only stopped talking about it.
The way things look now, Model S+X production will be a bit below 2017’s, so <100K units. The most optimistic realistic outlook for Model 3 production in 2018 is ~150K (personally I think it'll be closer to 100K), so all in all 200K-250K units in 2018.
That's at best HALF of the plan. Yes, certainly counts as vastly behind.

Pushmi-Pullyu
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Pushmi-Pullyu
Yes, I think that’s fair. It’s true that Tesla finally started seriously ramping up Model 3 production only about 6 months later than the earlier and most optimistic guidance, but even after they did start significantly ramping up, in December 2017, that ramp-up has gone significantly slower than even the lowered-expectation guidance at the beginning of 2018. I have no idea how close Tesla is getting to being in a precarious financial situation. But with Model 3 ramp-up significantly slower than expected, and with all that money spent on equipment with an anticipation of a much faster ramp-up, Tesla must be getting a lot less income per quarter to balance out those expenditures than they had planned. Tesla can’t be in as good a financial situation now as they predicted, back in the middle of 2017. Or at least, I don’t see how it’s possible that they could be. I’m very surprised indeed that Tesla (or Elon) says they won’t need to do any more “fund raising” this year, given the fact that their income must be significantly lower than expected. Do we need to parse that? Can Tesla borrow more money without “fund raising” by using existing lines of… Read more »
TeslaPlease
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TeslaPlease

— Tesla had about $3.5 billion in cash at the end of 2017
— No profit in Q4 2017 and Q1 2018

OUTGO (Approx 2-2.5 billion in 2018)
— Money spent dealing with the battery problems
— Money spent dealing with the Model 3 production problems
— Model 3 payables due to parts suppliers and automation equipment suppliers (not being used)

– – Salaries and Other Expenses
— New staff for automation replacement work
— Ramp-Up for Model Y, Roadster, Semi
— FSD (MIA)

DEBT SERVICING
A $230 million convertible bond maturity comes in November
A $920 million convertible bond comes due in March 2019.

I suspect another dilution of stock value to raise equity in Q1 2019 (unless things change)

Nix
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Nix

I see you intentionally left out increased revenues from Model 3 sales on the revenue side.

Interesting prediction that Tesla will start production of the Y, Roadster, and Semi in 2018, and thus have ramp-up expenses on those products in 2018. Source?

I also see you completely ignore the two things Tesla has clearly and repeatedly stated they will use for cash flow that have zero share dilution:

1) Use of credit lines from banks.
2) Bundling leases and selling them as assets/securities.

TeslaPlease
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TeslaPlease
Sadly, you only see what you want to see but I will clarify. ‘I see you intentionally left out increased revenues from Model 3 sales on the revenue side.’ At current production levels, the pull-back of Model 3 automation, and the need to hire more staff to replace the money spent on automation – that has not worked, the Model 3 increased revenue has to be balanced against 1) projected production numbers not being met, increased manufacturing costs, and approaching reduction in US Federal tax credits. ‘Interesting prediction that Tesla will start production of the Y, Roadster, and Semi in 2018, and thus have ramp-up expenses on those products in 2018. Source’ I’m sorry you must not have a background in manufacturing BUT in 2018 1) production sites for these new products must be identified and provisioned 2) tooling must be designed, suppliers selected, parts validation and QA work must occur 3) monies must be secured to pay for the pre-production work (not coming from Model 3/X/.S revenue if there is any chance of 2019 PRODUCTION for these products ‘I also see you completely ignore the two things Tesla has clearly and repeatedly stated they will use for cash flow… Read more »
Nix
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Nix

1) ” the Model 3 increased revenue has to be balanced against ” Absolutely. But in order to balance it, you first have to list it. You only listed “OUTGO” and “DEBT SERVICING” with no mention of revenue. You failed to “balance” because you failed to list revenues.

2) None of the items you listed were “ramp-up” costs. Those are pre-production costs that have nothing to do with ramping up production. Ramp up is a significant increase in the level of output of a company’s products or services. That will not happen in 2018 for the products you listed.

3) You still have to count the lease and credit line cash towards cash flow. You failed to do that.

Repost AFTER you have corrected your numbers to include the revenues and the lease/credit line inputs into Tesla’s cashflow numbers. Don’t bother posting until you have.

TeslaPlease
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TeslaPlease
‘1) ” the Model 3 increased revenue has to be balanced against ” Absolutely. But in order to balance it, you first have to list it.’ Do you know what the revenue is for the Model 3? Not a guess – We will know if Tesla chooses to disclose the information . May 2 we will earn a lot more. There have been substantial non-planned costs 1) (Grohmann Engineering canceling other non Tesla work, 2) Grohmann Engineering working on the Model 3 battery production problems 3) Tesla ending conveyor system for parts delivery (replaced with?) 4) Tesla suspending automation (partly) – not able to get working correctly 5) Tesla hiring staff to replace non-working automation tasks THESE ARE SUBSTANTIAL NON-PLANNED COSTS – FUNDED BY DEBT 2) You see what you want to see – ‘ramp-up’ is not a word exclusive to ‘production’ Refer to dictionary — if you have one 3) Credit lines are generally revolving used to cover day-to-day expenses and not used for capital investment. Those eases you refer to were a one-time event Okay… I’ll include the 546 million auto leased backed loan as cash flow ‘The firm could burn through $4.2 billion this year, according to… Read more »
Nix
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Nix

So you are asking ME to come up with revenue numbers for YOUR analysis? Thanks for admitting that you simply don’t have the ability to even come up with an estimated range of Model 3 revenue, thus admitting you are incapable of doing the analysis needed to support your claims.

You can repeat costs until you are blue in the face, but your utter failure to even create a range of revenue estimates simply proves you aren’t capable of doing the math required.

Sadly, even after admitting you failed to account for cash equivalent to 25% of your claims, and still failing to account for M3 revenue OR credit lines, you still are too ignorant to even understand how badly you’ve failed.

Pushmi-Pullyu
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Pushmi-Pullyu

@TeslaPlease:

Your comments appear to be coming from yet another TSLA short-seller, cherry-picking negative facts to present a biased case against Tesla.

You left out the most important figures of all:

Tesla’s global automobile sales totals:
2012: 2650
2013: 22,300
2014: 31,655 (+41.95%)
2015: 50,580 (+59.8%)
2016: 76,230 (+50.7%)
2017: 101,312 (+32.9%)

TeslaPlease
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TeslaPlease

Debt fueled growth that is not sustainable is nothing to brag about. Show the debt, revenues and operating expenses that go with those increasing sales.

Nice try

Lamata
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Lamata

Mess with “The Master”… And …”Meet Disaster”…….lol

Another Euro point of view
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Another Euro point of view
One analyst above mentions that Tesla is such a black box it is very hard to make predictions. There was not long ago an article in seeking alpha comparing the information value of Tesla’s last 10k (annual report 2017) with the same report of General Motors on one hand and Caterpillar on the other hand. I had no time at the time to do the comparison myself but few days ago I had an exchange in the comments section of Cleantechnica whether Tesla could be profitable if it slowed down its growth (IMO yes). For that I needed, among other things, to have a breakdown of the “depreciation & amortization expenses” ($1.6B) as to find out what part of that amount is caused by the growth (as an important part of that post is amortization of leased vehicles and solar systems thus would remain for a time even if growth slowed down considerably ). So I downloaded the 10k and made a search on word “depreciation” and another search on the word “amortization”. I could find some information but I was amazed that such a long document (278 pages) which after all is the company’s annual accounts, contains so many… Read more »
Pushmi-Pullyu
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Pushmi-Pullyu

You lost me at “Seeking Alpha”. I’ve read far, far too many of the blog posts and comments over there, which is the “ur-source” for Tesla bashing and anti-Tesla FUD. A vanishingly tiny percentage of what’s posted there about Tesla is worth reading, let alone worth quoting!

TwoVolts
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TwoVolts

He wasn’t so much quoting SA. Rather, he was critically testing their assertions by doing his own research. Is what he found too unpalatable for you to consider?

I think most people here have a genuine concern over whether Tesla can pull off its rapid growth phase and still ultimately be profitable. What’s wrong with trying to probe more deeply into 10K reports to gain greater understanding of Tesla’s financial outlook?

Nix
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Nix

Google concern troll to understand the problem

You sound gullible to concern trolling

Nix
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Nix

“One-time Tesla super-bull Adam Jonas of Morgan Stanley” That’s the crazy thing. Compared to all other Wall Street folks, HE is considered to be so far out ahead on Tesla that he is considered a “super-bull”. Yet here is how badly even the most bullish of super-bull Wall Street folks got it wrong:

1) He was a full year+ off on initial production of the Model 3, saying it wouldn’t happen until the end of 2018.
2) He was a year and a half off on production, saying Tesla wouldn’t hit 60K TM3’s until the end of 2019.
3) He set a price target of $242, and failed to predict TSLA actually hitting $380 within 6 months of his prediction.

https://insideevs.com/tesla-analyst-first-model-3-deliveries-expected-at-very-end-of-2018/

And this is THE MOST BULLISH of the mainstream Wall Street analysts!!!!! The rest did even worse.

ffbj
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ffbj

Although he was right on in his prediction of only 2k Model produced in 2017, when many others were expecting a much larger number. But it’s like when he went sour on Tesla, all his predictions went South, as you suggest. Like a friend that’s turned on you as you disappointed them somehow, and no matter what you can’t get back in their good graces .

Nix
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Nix

Well, he didn’t come up with that prediction until the Model 3 had been in production for a while, nearly a full year after his original 2016 prediction was proven to be off by over a year. I don’t know how many bonus points he should get for waiting until after the first Model 3’s rolled off the factory floor to correct his failed prediction that said it wouldn’t happen until late 2018.

Pushmi-Pullyu
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Pushmi-Pullyu

“Although he was right on in his prediction of only 2k Model produced in 2017, when many others were expecting a much larger number.”

Yeah, but that was almost certainly more accident than perception on his part.

Reminds me of the story about the horse race where the entire pack got tangled up and all the horses were trapped or fell down. The only horse that didn’t get caught in the tangle was one that had been badly trailing the pack, and was able to run around the tangle. That slow horse went on to win at something like 14:1 odds. The only guy who collected a significant win for that race was overheard exclaiming to his girl: “See, I told you that horse would win the race!” 😉

ffbj
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ffbj

Analysis is a tricky subject when you are talking about something as complex as Tesla. How many Tesla doomsayers and for how long have they speaking of it. A long time in my book, and they’ve all been wrong.
Analysis is all left brain, bean counting stuff, it disregards the right brain rainbows & unicorns sort of thing that is really part of Tesla’s modus operandi.

In my view Tesla is like a stumbling genius, much like Tesla himself, who have heard the music of the spheres and seen the other shore, but can’t quite get there just yet. They still have to get it all together. Which is what I think they will do sooner, rather than later.
I could give a more detailed picture of what I trying to get at, but I don’t get paid, and those guys do, a lot and they’re wrong, but if they don’t do any analyzing you can’t really call them analysts, also being wrong doesn’t seem to matter all that much, as few recall what some clown said last week so who can remember what they said 6 weeks, 6 months 6 years ago, yet they still get a paycheck.

Pushmi-Pullyu
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Pushmi-Pullyu

Yes, it is truly remarkable on how these self-appointed financial “analysts” are so seldom called out for being almost constantly and consistently wrong in their predictions about Tesla!

Will
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Will

Analyst have to wait. Dont jump yet. If it comes down and they do below 1billion then yeah be afraid. I more upset with Ford going all in with SUV