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Home / Business / Musk's promise of "no new capital" is facing a test when Tesla reports results

Musk's promise of "no new capital" is facing a test when Tesla reports results



SAN FRANCISCO (Reuters) – Investors are used to the bold promises of Tesla Inc. ( TSLA.O ) Elon Musk, but his claim that the electric vehicle maker does not need more resources this year many scratched their heads. How can the Chief Executive Officer achieve his many goals without fresh funds?

FILE PHOTO: A Tesla car is charged at a charging station in Beijing, China, on April 18, 2017. REUTERS / Thomas Peter / File Photo

The Californian Tesla is about to embark on a pivotal phase in its 15-year history. Production setbacks with its new Model 3 – the much-anticipated sedan that Tesla had praised – would push electric vehicles into the mainstream – have eclipsed Musk's promises and verdict. A number of new projects in the pipeline, from a semi-trailer to an SUV, are now considered expensive, time-consuming distractions to some analysts, even as competing automakers launch their own electrical offerings.

A capital increase would alarm investors, as the company continues to burn money. Tesla reports first quarter results on May 2.

Musk's bullish prediction is a complex accounting exercise based on several best-case scenarios. These include: By the end of the second quarter, 5,000 Model 3 sedans will be built each week; Cut or postpone high spending, which generated $ 3.4 billion in investment in 2017; and improve gross margins.

The lack of information on Tesla's many capital-intensive projects – from the Model Y switch this year to the partially built Gigafactory in Nevada, to the semi-truck and roadster scheduled to start production in 2019 and 2020 – complicates the task .

"There are many moving parts there," said Andrew Walker of Rangeley Capital, who holds a small short position in Tesla on Wednesday. "It's just so many questions and such a black box, it's very difficult to determine the future." Shorts bet that a stock price will fall.

Tesla shares rose 1% on Thursday afternoon to $ 283.67. Their shares have fallen by more than 9 percent so far this year.

UBS analyst Colin Langan estimates that Tesla – which closed in 2017 with $ 3.37 billion in cash – could fall below a $ 1 billion cushion at the end of June, on the basis of an estimated negative free cash flow of 1, $ 6 billion in the first half of the year year. Some, like Bernstein, gave this estimate at $ 1.8 billion higher.

FILE PHOTO: SpaceX founder Elon Musk speaks at a press conference following the first launch of a SpaceX Falcon Heavy missile at the Kennedy Space Center in Cape Canaveral, Florida, USA, February 6, 2018. REUTERS / Joe Skipper / File Photo [19659011] Subtracting an additional $ 1.2 billion to refinance debt and provisions in 2018 reduces Tesla's cash value to $ 600 million. With a more bullish free cash flow model, such as Morgan Stanley's $ 880 million first half estimate, Tesla would still hover just above the cushion at $ 1.3 billion.

"Tesla may not need funds to raise money, but many investors expect the company to" want a lot "," wrote Adam Jonas of Morgan Stanley in a note released last week.

Much depends on the efficient mass production of the Model 3, along with tight expenditure control.

Tesla intends to build 3,000-4,000 models 3 per week next month, from today more than 2,000 models 3, and increase production to 5,000 by the end of the second quarter.

The construction of 5,000 Model 3s a week at a cost of $ 44,000 would translate into $ 2.64 billion per quarter, although efficiency dictates how much of it will go into profit.

But these calculations can be contentious. Morgan Stanley's Jonas noted that "no investor we've talked to expects a model production of 5k / week by the end of the second quarter of 18".

& # 39; LOSS OF CREDIBILITY & # 39;

Tesla has repeatedly underestimated its capital needs and raised money, whether through equity or debt, even after it was said it was not necessary.

"The company's financial projections may lose credibility in the financial world," Cowen & Co analyst Jeffrey Osborne wrote in a statement to clients earlier this month.

Since March, short-term interest in the stock has risen sharply to 30 percent of the float or stocks that can be traded.

On average, analysts predict that Tesla will not achieve non-GAAP profitability until the first quarter of 2019. According to Thomson Reuters data, analysts expect adjusted losses of $ 217.6 million and $ 40.1 million in the third and fourth quarters after double-checking their estimates to double the losses they expected at the end of 2017.

Expect negative cash flows of $ 125 million and $ 67 million for the third and fourth quarters on average.

Other special effects include the sale of ZEV loans or deposits by Model Y customers. Musk's recent admission that he was wrong in adding too much automation to the Model 3 line could also prove a costly mistake, to relax. The Model 3 targets a gross margin of 25 percent when it is fully battered, but with production stoppages and the need to hire more 400 hourly workers, the vehicle's negative margins could continue to come under pressure in the short term.

Against this background, a capital increase in 2018, according to UBS's Langan, "is a matter of when, not whether".

Reporting by Alexandria Sage; Arrangement by Peter Henderson and Matthew Lewis


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