TESLA Headed for Lack of Cash Again?

[Tam]

...It's like cutting your pizza into more slices. Yeah, you get more slices, but now they are smaller.

Except for that one single pizza just keeps growing. There was 1 gigafactory in Nevada, then another one in New York, and now a third one in China. The car production has been trending up...

 

[Tam]

...cash...

A public company Tesla running out of cash is just like a diver in a shallow pool holding his breath under the water and complains that he's running out of air.

It's just dramatic talk so people appreciate how hard he's training but there's a lot of air. Just move his head back and breathe the fresh air just above the water line!

It's the same talk by saying it's not possible to get cash from secondary common stock offerings because of dilution.

It may be true for other companies but not for Tesla.

I might miss some but Tesla has been issuing stocks multiple of times:

01/29/2010 IPO with 13,300,000 shares
05/21/2010 Secondary Common Stock Offering 2,300,000 shares
08/14/2015 Secondary Common Stock Offering 2,700,000 shares
05/25/2016 Secondary Common Stock Offering 1,395,348 shares
03/16/2017 Secondary Common Stock Offering 1,540,000 shares

Does that mean the stock would be diluted and its price would go down?

On the contrary: Despite repeated stock offerings, its stock price has trended up since 2010.

If you worry about Tesla running out of cash. It's just like worrying about the experienced diver in a pool would be running out of air! Don't worry about it!

By the way, TSLA is a growth stock.

And if you are worried about how its book will register profits from quarter to quarter, you are really choosing the wrong one!

It's just basic investing.

 

[Uncle Paul]

Tesla IS a growth stock. As they grow, they will borrow money to finance their growth.

Those worried should compare total valuation to other auto companies. Both GM and Ford have valuations lower than Tesla, but almost 10x the amount of accrued debt.

Auto manufacturing is always intensly capital intensive. Nature of the beast.

Tesla just needs to be using those borrowed funds to good use. If they use the $ to finance additional profitable production, then the debt is good, and just an means to an end.

While Tesla is currently profitable, they do not throw off enough free cash flow to finance all their growth. Debt or equity (probably a combination of both) is a good and proper way to finance their spectacular growth.

 

[BenPrice]

Of course short sellers predicted all sorts of things. I'm asking if Tesla will have the cash they need to get the model Y out the door as well as open a facility in China and bring the pickup to production, etc, etc, etc, as they keep talking about.

I always find it interesting when someone ignores current facts and looks to the past as if past successes guaranteed future successes.

While I think Tesla has done great things so far, they have had many failures as well. While they did finally get the model 3 into volume production, that happened some six months later than they forecast and the forecast was important in terms of keeping the company afloat. Musk himself pointed out that they were not so far from running out of money.

Tesla has also failed regarding a $35,000 model 3. That is a big inhibitor to sales. It's almost humorous how Musk says there is lots of demand for the model 3, just not at the price they are selling it! lol

The lateness of achieving milestones is par for the course with Tesla. At some point it won't be cute anymore.

With more competition coming up in the next couple of years Tesla will need to start operating like for-profit company, meeting deadlines and achieving goals, especially financial goals.

Does anyone actually expect to see model Y cars rolling off a production line in any real volume by the end of 2019 like they are forecasting?

You don’t understand the most basic concepts of business and manufacturing and are regurgitating moronic posts you read on twitter.

No company who is selling everything it can produce is going to undercut themselves.

The Model 3 price will continue to drop as the demand softens for higher priced variants. If [insert company A] can sell 100% of its factory output at $50,000 per unit they are not going to introduce a $40,000 per unit. That would be dumb. As the $50,000 per unit softens the $40,000 is released. Rinse, repeat.

The lack of competition is going to continue.

Traditional automakers are tied to dealerships. Dealerships revenue is tied to service. EVs remove a giant chunk of dealership revenue, which is why:

https://www.sierraclub.org/sites/ww...siwig/1371 Rev Up EVs Report_09_web FINAL.pdf

As long as dealers exist traditional auto makers will have to essentially bribe/force EV sales, which will negatively effect OEM income.

Simunltaneously EV charging infrastructure is being bought by Shell and BP (ElectrifyAmerica, Ionity, etc.) and not auto OEMs.

Therefore, OEMs will miss this revenue stream as well.

The products announced for 2022 by the largest automaker in the world (VW group) do not compare favorably to a 2015 Tesla Model S, let alone what Tesla has on the market today.

Lastly, Tesla has never said the Model Y will be in scaled production in 2019. Instead, on numerous occasions they’ve stated 2020.

Go back to school.

 

[anthonyj]

Why is everyone getting upset with OP? Didn’t Tesla just go through bankruptcy on April 1st of last year? His concerns are valid, and with SOLO coming out with their electric tricycle, Model 3 demand should drop. They can’t build Model Y with negative FCF!

 

[Esme Es Mejor]

At the moment Tesla is making money with a net positive cash flow. But while sales of model 3s are good, the model Y is going to become another cash drain. If they really want to be shipping these things in volume by the end of the year as well as building a new factory in China, they are going to be spending money like it's on fire.

I just have one question:

 

[gnuarm]

Wow, the vitriol expressed by this crowd is amazing. Clearly it is a sensitive issue with Tesla owners. Rather than attacking the messenger, why not just discuss the message?

I want to correct something I wrote. I said model Y cars would be produced in 2019. That is not correct. I mixed the dates between the model 3 made at Shanghai and the model Y made in Nevada.

But my point still stands. There will continue to be significant cash flow required for the construction of two factories. While the Shanghai factory will be financed with Chinese loans increasing the company's interest payments, I have found little to show how they will fund the construction of the Nevada facility to build the model Y which will take nearly two years of continuing expense before it returns significant profit.

Elon himself is concerned that sales will slump. Although they will be making lower cost versions of the model 3 in Shanghai it seems they won't be sharing them with the US.

Musk warned that prices of Tesla’s popular vehicles weren’t going to be affected by the new facility, and instead encouraged people sitting on the fence, torn between buying now or waiting, to go ahead and buy their Tesla.

After all, “We need to sell cars today in order to build the factory tomorrow.”

As I said to start with, to me it seems like Daedalus is once again flying close to the sun. Whether he is flying too close remains to be seen.

 

[gnuarm]

Tesla is selling every 3 they make, and are currently shipping high content versions overseas. What sales are they missing out on?

I think you have it backwards. They could be making cars faster, but there is no reason to given the level of demand. Remember last spring/summer when they struggled to reach 5,000 a week even for a single week? At one point Elon said he wanted to make 10,000 a week. Meanwhile they still aren't making 5,000 a week on a regular basis.

Part of the reason why they aren't pushing is because they don't want to start stockpiling cars. It is clear that demand is not continuing to be as strong as previously or they wouldn't be knocking down the car prices which has significantly impacted the stock price. I fully expected a big bounce after the Q4 release, but the lowering of the prices dampened that considerably.

The Chinese market won't support such high prices and the Shanghai factory will have to produce much lower costs to be profitable on lower priced models.

I haven't seen any sales figures for Europe so far. It will be interesting to see how they do there in the short term and more interesting to see how they do in the long term. If they aren't shipping significant quantities by Q2 I wouldn't expect to see much improvement with more time. I seem to recall there are issues in Europe with service centers.

 

[anthonyj]

Model Y probably won't even be shown this year so what's the problem? For all we know, Model Y will start being mass-produced in 2022. This is Elon we are talking about. By 2022 Tesla should have enough cash in the bank. I'm being semi-sarcastic but that's probably what's going to happen

 

[EinSV]

At the end of 2018, Tesla had $3.7B in cash.

Tesla’s operating cash flow in Q3/Q4 2018, annualized, was $5.1B.

Tesla’s expected CapEx for 2019 is $2.5B.

Tesla has convertible bond payments due in March and November of ~$1.45B

Even if Tesla does not improve on Q3/Q4 2018, it will still generate ~$1.2B more than it needs for CapEx and convertible debt payments.

All else being equal this would leave it with about $5B in cash at the end of 2018.

But, Tesla has said it plans to raise local debt for GF3. If it borrows $500M it can still retire ~$1B in debt and have $5.5B in cash at the end of 2019.

And this assumes no improvement. Tesla has forecast increased M3 gross margins, increased operating leverage, doubling of storage, etc., etc.

 

[gnuarm]

Model Y probably won't even be shown this year so what's the problem? For all we know, Model Y will start being mass-produced in 2022. This is Elon we are talking about. By 2022 Tesla should have enough cash in the bank. I'm being semi-sarcastic but that's probably what's going to happen

You have it backwards. Yes, it is possible the model Y won't be produced in volume before 2022, but you seem to be missing the real issue. As they work to bring the new production facilities online they will once again go through a period of very heavy expenditures and the company will potentially go into the red until the line is producing in volume.

If the company bleeds red ink until 2022, there won't be a company.

I remember talking to a car salesman about Tesla and this guy was pretty gung ho on Musk and Tesla. I pointed out that at that time it was all about getting the model 3 into volume production, fail that and the company dies. He seemed to think that Elon could personally hand the company billions of dollars and would never let it fold. Certainly there are ways to get cash if you need it, but if the company gets too far behind the eight-ball, no one is going to take such a huge risk. They would rather just wait for it to fail and pick up the pieces. Tesla may well be a company who's pieces are worth more than the whole.

 

[Uncle Paul]

Tesla will begin taking deposits on Model Y and Truck soon. This will flood them with some additional $$. They can take these orders to most any financial company and borrow against the orders.

Lots of people are wanting to invest with Tesla. Mostly Tesla just need to decide how much equity to sell or debt to incur. They have already shown that they can take lots of costs out of their production and can easily sell lots of highly profitable vehicles.

Some have predicted that Tesla will in the future become one of the most profitable companies in the world.

 

[Steve m]

This is short term thinking.

It is clear that demand is not continuing to be as strong as previously or they wouldn't be knocking down the car prices

Tesla and Musk tend towards long term thinking. For example building the GF1 battery factory to insure a supply of batteries and the network of super charge stations allowing tesla cars to make long distant drives.

A recent German Auto Magazine discussed Audi's and Porsche's reaction to their tear down of a model 3. They realized that what they are getting ready to produce is way behind Tesla.

A price reduction by Tesla decreases Tesla's short term profits but could slow down their competitors entry into massed produced evs. If Tesla is reducing costs and maintaining margins then even better.

Long term thinking.

My idea is just an opinion. Your ideas are also just opinions. Your holding an opinion without inside collaboration and presenting it as a fact is foolish.

 

[EVNow]

As they work to bring the new production facilities online they will once again go through a period of very heavy expenditures and the company will potentially go into the red until the line is producing in volume.

They are forecasting 2.5B in capex and have enough money for that.

ALso, I expect the way it works is that they build a new factory in EU, instead of just expanding in US. The EU factory can be built using local loans, just like China GF. This way, 3 & Y would be built in the continent of sale - for lowest capex & tariffs - and cheapest transportation costs. Same line should be able to build both 3 & Y.

So, even though they have enough money for planned Capex, they can probably get easy loans too.

ps : I expect them to start mass production of Y sometime by end of 2020 or in 2021. It will definitely be easier this time than during 3 (or X!).

 

[mongo]

I think you have it backwards. They could be making cars faster, but there is no reason to given the level of demand. Remember last spring/summer when they struggled to reach 5,000 a week even for a single week? At one point Elon said he wanted to make 10,000 a week. Meanwhile they still aren't making 5,000 a week on a regular basis.

Part of the reason why they aren't pushing is because they don't want to start stockpiling cars. It is clear that demand is not continuing to be as strong as previously or they wouldn't be knocking down the car prices which has significantly impacted the stock price. I fully expected a big bounce after the Q4 release, but the lowering of the prices dampened that considerably.

The Chinese market won't support such high prices and the Shanghai factory will have to produce much lower costs to be profitable on lower priced models.

I haven't seen any sales figures for Europe so far. It will be interesting to see how they do there in the short term and more interesting to see how they do in the long term. If they aren't shipping significant quantities by Q2 I wouldn't expect to see much improvement with more time. I seem to recall there are issues in Europe with service centers.

They are likely hitting 5k/ wk currently. Latest rumor data is that GF1 is currently not able to hit 7k/wk of the packs. GF3 is planned to be the lower cost SR at 3k/ wk with the higher trims coming from GF1. This is a change from 10k at Fremont, but then so is the tarrif situation.

They lowered the price a little on cars due to the step down in EV credit and cancellation of the referral rewards program.

 

[gnuarm]

They are likely hitting 5k/ wk currently. Latest rumor data is that GF1 is currently not able to hit 7k/wk of the packs. GF3 is planned to be the lower cost SR at 3k/ wk with the higher trims coming from GF1. This is a change from 10k at Fremont, but then so is the tarrif situation.

They lowered the price a little on cars due to the step down in EV credit and cancellation of the referral rewards program.

The only reason to lower the price on cars it to sell them. It's that simple.

I'm not surprised they aren't trying to hit 10k a week at Fremont because it is very unlikely they can, but more important that it is unlikely they will sell that many cars. They are opening markets in Europe and China, but so far there is no reason they can sell another 5k a week in these two markets combined at the current margins.

Regardless of where the bottlenecks are in production, if they wanted to make more cars, they could and would. The only reason to not make and sell more cars is because they can't.

We will have to wait and see if Shanghai is producing 3k model 3's a week at the end of 2019. That will indeed be a significant accomplishment. I wonder if they are going to make the line the same as in Fremont or if it will be modified for differences in culture/capabilities in China. I don't think I've ever had a conversation with anyone making things in China. Not sure how it might be different.

 

[mongo]

The only reason to lower the price on cars it to sell them. It's that simple.

That's over simple (Einstein warned of such things).
Tesla removed the referral program. That program cost money per car. It does not hurt Tesla's bottom line, and adds good will, if they they reduce pricing by a percentage of the savings. Tesla goal is to accelerate the transition to renewal transportation, not to make the most money possible. Getting cars into the hand if people is one way they achieve this goal. Going for 30+% gross margin hurts the goal, so why do it?

The US price change to partly offset the EV credit drop did not impact oversea's pricing. All manufacturers get more efficient and reduce price over time. Tier 1 supplier agreements even require it...

Regardless of where the bottlenecks are in production, if they wanted to make more cars, they could and would. The only reason to not make and sell more cars is because they can't.

No, that is also over simplifying, you are saying the only possible reason behind the 'can't' is demand. Tesla is bumping up against the limits of what they can comfortably build, and pushing the boundary, that is the 'can't', not demand.

Tesla does not have infinite resources, Fremont does not have infinite space. Creating 3k of production in a new GF4 was judged to be a better use of time and capital than adding 3k of production to Fremont.

 

[Steve m]

The only reason to lower the price on cars it to sell them. It's that simple.

Only to those that can't handle complexity.

Short term thinking you set prices to maximize profits not to maximize sales.

Long term thinking may include other considerations into your pricing. Effect on competition. Seeding the market. Increasing demand for components to improve their prices, etc.

 

[ItsNotAboutTheMoney]

Wow, the vitriol expressed by this crowd is amazing. Clearly it is a sensitive issue with Tesla owners. Rather than attacking the messenger, why not just discuss the message?

I want to correct something I wrote. I said model Y cars would be produced in 2019. That is not correct. I mixed the dates between the model 3 made at Shanghai and the model Y made in Nevada.

But my point still stands. There will continue to be significant cash flow required for the construction of two factories. While the Shanghai factory will be financed with Chinese loans increasing the company's interest payments, I have found little to show how they will fund the construction of the Nevada facility to build the model Y which will take nearly two years of continuing expense before it returns significant profit.

Elon himself is concerned that sales will slump. Although they will be making lower cost versions of the model 3 in Shanghai it seems they won't be sharing them with the US.



As I said to start with, to me it seems like Daedalus is once again flying close to the sun. Whether he is flying too close remains to be seen.

The Nevada facility will be an area of the Gigafactory, where the motors and batteries are already assembled/manufactured. Y will have the same powertrain as the 3.
It also won't be the ridiculous monster that the X is. The Y will be much more of a variant.
Shanghai is financed with Chinese investment so self-contained.
US cell manufacturing would be paid for by Panasonic.
Build a line.
Get it working.
Duplicate.

The 3SR is the Tesla problem. Y will not be a problem.
No 3SR, no Y.

 

[TheTalkingMule]

As a 2001 Wrangler owner I'm anxious to see who wins the race to a comparable off road experience with the ability to charge via solar. I'd like to use this thread as a brainstorming area of solar charging concepts for off road applications.

Obviously there are(or will be) lightweight thin film solar options allowing for a "roll out" array that simply plugs directly into your EV Wrangler, but what about when the Sun isn't so easily accessible? If you're out on the trail and parked at a campsite, chances are the tree canopy is blocking nearly all direct sunlight.

I was thinking these off road EVs will certainly have robust inflate/deflate capabilities for tire pressure and other tasks. Considering we'd have significant battery power at our disposal, would it be possible to have an onboard hydrogen tank that could fill 3 or 4 weather balloons and float a 3kW thin film array up above the tree canopy? Then you reel the array back in, re-compress the hydrogen back into it's tank, and you're on your way!

Thoughts?