Teslas Q1 cash-crunch / Q1 financial analysis. Were they nearly bankrupt?

[googlepeakoil]

All you need is 3 figures.
Sales of $4.4bn (net loss was $702m)
So Q1 costs of $5.1bn
Cash position at end of quarter of $2.2bn,
... and Elon admitting on the earnings call that half of their sales completed in the last 10 days of the quarter (remember Tesla don't consider a car sold until all paperwork is complete. That only happens on completion/delivery).

So lets wind back 10 days to March 20, 2019.
They had only earned half their Q1 revenue ($4.4bn), so $2.2bn
Their costs at this time would have been close to the $5.1bn - lets assume $4.5bn.
So take $4.5bn away from $2.2bn and you are negative $2.3bn for the quarter. Now they only ended up with $2.2bn in cash - so you can start to see how close to bankrupt they were. Tesla's cashburn is $1.8bn a month.
Having at most a few hundred million in the bank is catastrophically close to bankruptcy!
If a ship or two had been delayed by a week, if they hadn't completed final paperwork for the cars that had landed, if the China import documentation/paperwork had not been resolved then losses would have been $2.4bn higher and they might have been bankrupt.

This I believe explains the desperate financial moves (crashing S and X prices, discounting FSD and AP, larger deposits for Model Y, redundancies, buying that trucking company with shares and not cash, etc).

Of course - this should not happen again as they will stagger production with a more balanced International vs National delivery. Elon said they strained the system too much with the massive international batch in Q1 - but remember they put this upon themselves to maximise sales in Q4 by only delivering to the US to maximise incentives, then do as much international in Q1 2019 to maximise ASP by only selling AWD and performance internationally!

 

[googlepeakoil]

correction - cash burn is $1.7bn a month ($5.1bn / 3). That's still a scary amount when you have $2.2bn in the bank. That's about 40 days where you need to keep revenue inside costs... where you don't want to be waiting on cars to board ships, travel half the World and undock, get imported, and delivered! Deliveries to Europe have to go through the Panama canal!
Let me know your thoughts on my economic analysis - I did Business Economics at UNI but I can't follow all of a balance sheet and don't do financials for a living.

 

[anon]

At the end of the quarter, they had $1.34 billion available in unused committed loans that were not drawn at that time. These appear as the credit agreement and warehouse agreements in the long-term debt obligations sheet. These were likely drawn further during the quarter when necessary, or at least could have been drawn if required. I agree that the numbers aren't fantastic, but this does make a very significant difference.

Another important factor is that some of the revenue is earned before the car is received, due to the deposit, so the change in cash in the last 10 days is somewhat smaller than indicated. In particular, a very large deposit is charged in China to cover the import duty.

 

[Doggydogworld]

At the end of the quarter, they had $1.34 billion available in unused committed loans that were not drawn at that time. These appear as the credit agreement and warehouse agreements in the long-term debt obligations sheet. These were likely drawn further during the quarter when necessary, or at least could have been drawn if required..

They can't just draw on these at will. Credit Agreement (aka ABL) is backed by inventory (and other stuff), for example. So they have to spend cash to build a car and put it into inventory before they can borrow against it. If they lease a car out of inventory the proceeds from the Warehouse line go to pay down the ABL.

These credit facilities help Tesla manage cash drains that building inventory and leasing cars would otherwise create, but they are not available to finance other activities.

All you need is 3 figures.
Sales of $4.4bn (net loss was $702m)
So Q1 costs of $5.1bn
Cash position at end of quarter of $2.2bn,
... and Elon admitting on the earnings call that half of their sales completed in the last 10 days of the quarter

Yeah, if you're going to analyze cash you have to look at a lot more than just that. You also have to start with Automotive Sales Revenue, adjusted for the 501m RVG accounting change, instead of total revenue. They didn't generate half of Energy or Service revenue in the last 10 days.

 

[anon]

So they have to spend cash to build a car and put it into inventory before they can borrow against it.

True, however I think the point was that they had too much inventory in transit before they could receive the cash, so this was just the kind of situation that the warehouse loan could cover. Or am I missing something?

 

[anon]

Also just noticed a mistake in what I said above:

Another important factor is that some of the revenue is earned before the car is received, due to the deposit, so the change in cash in the last 10 days is somewhat smaller than indicated.

I believe the revenue isn't booked as received until the car is delivered, but I just meant to indicate that some of the cash is received before then.

 

[Doggydogworld]

True, however I think the point was that they had too much inventory in transit before they could receive the cash, so this was just the kind of situation that the warehouse loan could cover. Or am I missing something?

ABL finances inventory, Warehouse is only for leased cars. But otherwise, yeah. People who say inventory build will drain Tesla of cash usually ignore the ABL. It only finances 85% of cost, if I recall, so inventory build does drain balance sheet of some cash. There's also a limit to how much inventory ABL lenders will finance (just got increased in early March). I don't think it finances Chinese inventory, either.

The ABL is secured by other stuff besides inventory, but mostly stuff that doesn't change in value much from month to month.

 

[TheTalkingMule]

I've heard they don't even test the brakes before delivery.

 

[anon]

ABL finances inventory, Warehouse is only for leased cars. But otherwise, yeah. People who say inventory build will drain Tesla of cash usually ignore the ABL. It only finances 85% of cost, if I recall, so inventory build does drain balance sheet of some cash. There's also a limit to how much inventory ABL lenders will finance (just got increased in early March). I don't think it finances Chinese inventory, either.

The ABL is secured by other stuff besides inventory, but mostly stuff that doesn't change in value much from month to month.

Thanks for clarifying that for me. So that means they had around $400 million unused in the ABL at the end of the quarter (following the increase in early March), which could have been put towards the cost of inventory if necessary after the increase was approved in early March.

On the warehouse agreement, do you think they currently have room to draw a significant fraction of it whenever they need to, backed by already-leased cars, or do they only draw from it for newly-leased cars? I see that the amount drawn went down a lot during 2018, so I am wondering if they could draw from it again for existing cars.

 

[neroden]

At the end of the quarter, they had $1.34 billion available in unused committed loans that were not drawn at that time.

More.

China: $510 million (yes, it can be drawn in dollars)
Credit Agreement: $415 million
Warehouse Agreement: $925 milion
Unused Letters of Credit: $224 million
----
2.075 billion in unused credit. (To be fair, the Warehouse Agreement loans are restricted, as they have to be backed by leased cars produced; the other loans are not. So unrestricted unused credit is 1.15 billion. I am assuming Tesla has enough assets to back the Credit Agreement, since they obviously do.)

The Warehouse Agreement specifically is for financing vehicles, so it WOULD have been drawn down during the quarter. That's what it's actually *for*. IIRC, they can borrow at 85% of the value of the cars.


Sooo, if before the 10-day "Delivery rush" they were 1.2 bilion in cash down relative to the end of the quarter (a plausible guess)... well, they probably used the $415 million in the Credit Agreement and the $224 million in the Letters of Credit as necessary.

Low on cash, but not really in danger of running out. Especiallly since there seems to be absolutely no trouble getting banks to lend them more money (the Credit Agreement was increased *during* Q1).

 

[Doggydogworld]

So that means they had around $400 million unused in the ABL at the end of the quarter (following the increase in early March), which could have been put towards the cost of inventory if necessary after the increase was approved in early March.

Assuming they had enough inventory (and other stuff), yes. You'd have to look up all the pledged assets and estimate what percent of each one counts toward the borrowing base (e.g. 85% of inventory, 80% of receivables, etc.). There was talk of them pledging Fremont at one point, but the percentage there would be 10% or something. The borrowing base is also reduced by other factors. They file a redacted version of the Credit Agreement with the SEC. The recent 10-Q included the 11th Amendment, I think. Stitching the original and all the amendments together is a chore, but some people do track it.

On the warehouse agreement, do you think they currently have room to draw a significant fraction of it whenever they need to, backed by already-leased cars, or do they only draw from it for newly-leased cars? I see that the amount drawn went down a lot during 2018, so I am wondering if they could draw from it again for existing cars.

​

Warehouse line temporarily funds leased cars until they have enough to put together a securitization. The securitization proceeds then pay down the warehouse line and they can use it to fund more leases. I think they pretty much draw on it as they lease cars, so it's never available to tap as a source of cash. The ABL is different, they often pay it down early in the quarter to save on interest. If they suddenly needed a few hundred million (perhaps to pay an SEC fine, lol) they could, in theory, draw on it.

 

[neroden]

The unused letters of credit are often overlooked because they don't show up in the debt table; those are the final backstop for emergency liquidity before they have to start making phone calls.

 

[schonelucht]

More.

China: $510 million (yes, it can be drawn in dollars)
Credit Agreement: $415 million
Warehouse Agreement: $925 milion
Unused Letters of Credit: $224 million

China can only be used to pay off builders in China’s gigafactory. Nothing else (like covering inter quarter operational expenses). Warehouse same as you note.

 

[googlepeakoil]

More.

China: $510 million (yes, it can be drawn in dollars)
Credit Agreement: $415 million
Warehouse Agreement: $925 milion
Unused Letters of Credit: $224 million
----
2.075 billion in unused credit. (To be fair, the Warehouse Agreement loans are restricted, as they have to be backed by leased cars produced; the other loans are not. So unrestricted unused credit is 1.15 billion. I am assuming Tesla has enough assets to back the Credit Agreement, since they obviously do.)

The Warehouse Agreement specifically is for financing vehicles, so it WOULD have been drawn down during the quarter. That's what it's actually *for*. IIRC, they can borrow at 85% of the value of the cars.


Sooo, if before the 10-day "Delivery rush" they were 1.2 bilion in cash down relative to the end of the quarter (a plausible guess)... well, they probably used the $415 million in the Credit Agreement and the $224 million in the Letters of Credit as necessary.

Low on cash, but not really in danger of running out. Especiallly since there seems to be absolutely no trouble getting banks to lend them more money (the Credit Agreement was increased *during* Q1).

So presumably all that unused credit is not counted in the $2.2bn of "cash and equivalents" that Tesla have. What are the equivalents in this case? Are they as liquid as cash? Does Tesla also have problems like Apple in having cash in say £s and Euros that they would have to pay tax on if they brought it back to the US?
Also - the "half cars sold in last 10 days before end of quarter" was in the shareholder letter as well as the conference call.