Crunch time for Tesla as Musk tries to bed down production | RenewEconomy

Crunch time for Tesla as Musk tries to bed down production

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There’s good reason why Tesla founder and boss Elon Musk is back to sleeping on the company’s giga-factory floor and directly supervising production.

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Source: Tesla
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Source: Tesla

Tesla will produce its first-quarter earnings report in early May. As the pioneer of luxury electric cars, and the likely first mass-market electric vehicle producer (with its Model 3), Tesla is normally the subject of a lot of interest, however this quarter’s report will be much more anticipated than perhaps any other.

The reasons are varied, but all have a common theme: Tesla is close to several important inflection points.

Firstly, the company’s future is now inextricably linked to the success or failure of the Model 3.

Tesla has garnered an unheard-of 450,000 customer reservations and has geared up on an enormous scale to produce the Model 3, and yet has struggled to actually produce cars at a high rate, with its recent production update claiming a one-week production record of 2,030 Model 3s (versus prior forecasts of 5,000 and even 10,000 per week).

Despite its charismatic founder Elon Musk’s ambitious plans, industry analysts are sceptical about Tesla’s ability to manufacture cars on a large scale. Elon possibly shares that point of view, as he’s back to sleeping on the giga-factory floor and directly supervising production.

Secondly, there are worries about whether the production rate is sustainable.

Personnel were shifted off the Model S and Model X production lines to build Model 3s (and both Model S and Model X suffered falls in production in the quarter), probably impacting the older models, and despite Elon saying that Tesla would achieve above 2,000 production for the following week, some industry analysts thought it could just be a burst rate, with a subsequent slump as the focus subsided.

In the contrary corner, Global Equities Research analyst Trip Chowdhry estimated on April 7ththat a production rate of over 2,500 was achieved for the week, and the Bloomberg VIN tracker showed an uptick.

Thirdly, investors will be examining Tesla’s cash burn and reserves carefully. Despite Elon saying that no cash raisings were needed this year, Tesla likely has some large bills coming due for capital costs of all the production plant.

If operations doesn’t start producing cash (read: get production up and profitable) and delays continue, it will have to either issue bonds or dilute shareholder equity. Tesla has been losing cash at around $200-250m per quarter, an estimated $1.6bn in equipment purchases will soon have to be paid.

Tesla doesn’t have to repay any significant debt principal until November (with even more due in March), but with $1.8bn due over the next 18 months it’s almost certain Tesla will need more funding.

With over $3.3bn in cash along with other short-term financing available, will Tesla have enough cash to fund its capital expenditures, operations, and debt repayment?

Unfortunately, $3.3bn doesn’t go very far when you are burning through cash at its current rate. 2017 ended with Tesla inking a $3.5bn negative cash flow.

A reasonable guess at Model 3 2018 numbers might yield an extra $9bn of revenue, perhaps $2bn of operating cashflow, which whilst very welcome, won’t reverse the cash burn (but would make an equity or debt raise feasible).

A critical quarter for Tesla indeed.

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9 Comments
  1. john 2 years ago

    The most shorted company I believe; so a whole lot of money is bet against TSLA.
    Also it and Amazon have hurt I seem to remember more shorter’s than any other company.
    Undoubtedly TSLA has to deliver that huge order for Model 3 once that is going well they should start to be cash positive. What is not seen here is the large investment gearing up to build the vehicles. ( It is pointed out in the Article )
    The detractors just ignore the capital investment and only see the lack of positive cash the actual profit per vehicle is not seen or ignored.
    I feel TSLA will succeed, and even if they were put out of business they single highhandedly have move the large auto manufacturers to look at EV’s.

  2. Joe 2 years ago

    The Elon can send his Tesla into space but having just a spot of bother making them on terra firma.

  3. Chris Schneider 2 years ago

    They are still ramping! We will see them over 5,000 soon! They have reinvested in equipment and the ramp is really going as you would expect. They had a short break on the Model X line (for a day) that is all. The Model 3 Had a week long break while new equipment was installed since then there has been a massive increase in production. A week ago it was 2,000 now it’s over 2,300! Next week 3,000 is my prediction. There issue will be hitting the 10,000 mark. Will a new line need to be created? what will be the cost outlays? When will the cash burn stop? I hope it’s soon cause they make the best cars on the market and everyone should have one!

    • Andy Saunders 2 years ago

      Elon has already said a new line will be needed for 10,000 – more capex…

      • Chris Schneider 2 years ago

        Interesting. I wonder what percentage of the first ramp up will be required. Contrary to what people think there is still room in the factory. This Plant produced 500,000 car per year as a manual ford factory. Space to build cars is not the issue.

        • TheWay 2 years ago

          A few things to note:
          1) Tesla should already be over 3000 per week (bloomberg tracker is delayed by a week and trend is what is guessing to be current week)
          2) Tesla has said they expect 7k – 8k per week
          3) The factory used to produce almost 500k cars, but it should be noted Tesla has bought land around the factory and in 2016, Tesla has filed plans to expand the factory to double its size. So it being able to produce 1 million cars a year in the end run is not out of the question.

      • Robin_Harrison 2 years ago

        The magic number for a very lucrative production system seems to be 5k. All the expense, time and risk is in developing that system and, if successful, the rest is copy/paste which is faster, cheaper and far less risky. More capex indeed, but probably from very willing investors.

  4. Robin_Harrison 2 years ago

    I find the terminology interesting. Tesla are obviously and openly investing all profits and lots more on future development. Every penny is accounted for, no sign of any going missing or lost. So I wonder, are losing money and investing money synonymous? Are investing money and burning money synonymous?
    The author is right, a critical quarter for Tesla indeed. Not helped by somewhat weighted terminology.

    • TheWay 2 years ago

      In the modern financial world, owning a factory is not an asset but a liability. (at least that is how investors like to pretend)

      So spending on money on growth and investing into R&D = not paying out dividends and hated by short term investors who don’t care about the company and just want to make a quick penny and run.

      Overall, Tesla is doing extremely well.

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