23rd March 2019 by Michael Grinshpun
Diving into Tesla Cash Flow, 2019 Commitments, Liquid, & A Bit More
• Analysts They often talk about Tesla's "cash problem," especially with regard to the repayment of the $ 920 million bond and the "Model Y" event.
• Tesla has access to so many sources of liquidity The cash problem is a mythical problem.
• Moody & # 39; s maintains its junk rating despite Tesla's excellent liquidity and successful production targets.
Until Tesla's $ 920 million massive repayment of the Tesla convertible, many analysts, media forecasters, and conspiracy theorists on Twitter expressed grave concern over Tesla's cash balance and liquidity. Analysts working for investment banks called on Tesla to raise capital. The crazy people made the potential for bankruptcy, a liquidity crisis or a massive restructuring that led to the end of Tesla's growth story, all based on the idea that for some reason Tesla can not raise capital.
But on March 1, Tesla paid back the convertible, and there was radio silence from the self-confident analysts, media forecasters, and conspiracy theorists we've just mentioned. Until the unveiling of the Model Y on March 14th.
"This timing probably assumes that the company is putting off the costly ramp of Model Y 2019 to save money. … We believe that Tesla will probably raise more money in 2019, "wrote analyst Gene Munster, a longtime Tesla bull.
"With this potentially bullish catalyst out of the way, we are preceded by a cautious narrative to continue on its course to Tesla. Market concerns about short-term demand, cash flow, and liquidity can be eliminated," wrote Jonas, a long-standing one Morgan Stanley's Tesla flip-flop analyst.
"The more expensive customer deposits for Model Y are likely to bolster bear concerns over Tesla's cash," wrote Toni Sacconaghi, an amber analyst.
More costly customer deposits for Model Y "suggest that Tesla remains in a precarious cash position," wrote Jeffrey Osborne, an analyst at Cowen & Co.
when an investor who is diligent and conducts his own research Instead of blindly believing that the media and analyst reports would plunge into the financial world, they would discover that Tesla faces cash problems, right?
Incorrect. Tesla's cash balance is healthy and access to liquidity is plentiful, and that should be obvious to any investor. Do it like this.
Dipping into Numbers
Let's explore Tesla's cash and sources of liquidity step by step and create an analysis. First, let's start with Tesla's current cash holdings. At the end of the fourth quarter of 2018, Tesla had cash in cash, according to the latest letter to shareholders [3.686 Mrd.] .
Next, we assess Tesla's current cash flows. In the third and fourth quarters of 2018, Tesla's operating cash flow of $ 1.313 billion per quarter was operationally positive and free cash flow positive. In 2019, part of this cash flow may be impacted by lower revenues and margins due to vehicle price reductions and shifts in demand, rising operating costs and increasing inventories (including transit vehicles). I personally see these challenges with skepticism when Tesla recently told an analyst that he sells every car he can make, and Tesla has recently taken many cost-cutting measures. However, we should be conservative for this analysis, assuming cash flow from operations will be halved in full-year 2019 to $ 656.5 million per quarter or $ 2.626 billion be reduced.
Next, we move on to other sources of liquidity. In the fourth quarter of 2018, Tesla had $ 1.54 billion in loans from its asset-backed loan agreement (Read: Credit Card). On March 6, 2019, Tesla expanded the borrowing of this loan agreement to 2.425 billion US dollars, so that the company had 885 million US dollars in borrowings available. Tesla also has a warehouse credit line that allows the company to take out loans for car rental companies. Tesla has currently borrowed $ 92 million from the storage line, leaving $ 1.08 billion in credit available as Tesla leases more cars. In addition, on March 1, Tesla received a $ 521 million construction loan from Chinese banks for the construction of Gigafactory 3 in China. Another source of liquidity for Tesla is the delay in supplier payments. One measure of how much Tesla can delay suppliers' payments is "Days Payable Outstanding" or "DPO". This is the average time Tesla has spent paying its suppliers after delivering their products. DPO peaked in the second quarter of 2018 after 82 days and in the fourth quarter of 2018 DPO was only 54 days away. If Tesla was in dire straits, as in the first half of 2018, when the production of Model 3 did not appear to be rising, it would extend its outstanding liabilities. If Tesla extended the data protection officer from the current 54 days to 82 days, he could hold additional cash and cash equivalents of $ 1.749 billion. Tesla has $ 10.547 billion available for 2019 between all liquid assets and liquidity sources.
But what about the debt and other obligations? Tesla made a $ 920 million bond on March 1, and another $ 566 million bond in November. Tesla also plans to invest $ 2.5 billion in 2019 to purchase equipment, land, construction, and so on. These are all obligations of Tesla, which we must include. All others, including trade payables and the like, are implicitly included as expenses in the operating cash flows I consider above. The total commitments for 2019 are thus $ 3.986 billion .
If you summarize everything in a graph, it is immediately clear that Tesla has no liquidity problem. The Californian company has cash and cash equivalents of $ 10.547 billion in 2019 and commitments of only $ 3.986 billion in 2019. Careful investors should ignore the narratives of analysts, media forecasters and conspiracy theorists on Twitter at Tesla If these claims are simply stated and not substantiated by mathematical data as they are made here.
Moody's, please do your job
Moody's is an authority for creditworthiness and should do so more responsibly than analysts, media forecasters, and conspiracy theorists on Twitter , However, it appears that Moody's has not been held responsible for the current valuation of Tesla's debts.
In March 2018, Moody's wrote: "Tesla's cash and cash equivalents at December 31, 2017 are $ 3.4 billion, and have moderate availability under the ABL Facility of 1, 9 billion USD. This liquidity position is insufficient to cover: 1) BESA's estimated minimum liquid assets of approximately $ 500 million that Tesla must maintain for normal business operations; 2) operating cash burn in 2018, which will be approximately $ 2 billion if Tesla maintains high discretionary capital spending to increase capacity; and 3) Convertible bond maturities of approximately $ 1.2 billion by early 2019. Tesla expects to generate more than $ 2 billion in short-term capital to meet this cash requirement. If the company maintains the expected rate of expansion, it will likely need to raise additional capital in the second half of 2019. "Moody & # 39; s also said," The rating could be raised if the Model 3 production rates meet Tesla's current expectations if the company maintains good liquidity.
As it turned out, Moody's was absolutely wrong in terms of Tesla's liquidity position since Tesla's cash flow for 2018 was + $ 311 million instead of – $ 2 Billions as Moody's projected, and this involved a repayment of the bond worth $ 230 million. Tesla ended 2018 with $ 3.668 billion in cash. This is a significant increase over 2017. This cash balance represents excellent liquidity as further illustrated by my analysis above. Regarding Tesla's performance in the target production rates of Model 3, we look at Bloomberg's tracker:
For me, it looks like Tesla has directly reached the production targets for three quarters, after the year 2017 and the first result was half of the year 2018. Tesla reached the production targets and maintained excellent and not only good liquidity. Of course, Moody's Tesla's improved junk B3 rating as they said they would, right?
Again wrong. Instead, Moody issued a statement saying, "Tesla's credit profile is tense," despite the company maintaining good liquidity and meeting production targets, two points Moody has acknowledged. Instead, Moody's focused on a qualitative assessment of the makeup of Tesla's recent management decisions and said, "Tesla is being challenged internally by ongoing mishaps and strategy reversals in a short space of time." Moody's accused Tesla's ongoing pattern of sales and earnings weak governance "for their chaotic decision-making process. Well, this review seems to be fair, as executive and strategy reversals were handled by the media and some investment bank analysts. However, it is a serious risk to rely on these qualitative assessments and not on the quantitative assessment of creditworthiness. These qualitative assessments are extremely subjective and can be exaggerated by the media. For example, how can one objectively measure the chaos of the management decision process? How many months have passed after a "chaotic decision", so that the management is no longer considered chaotic? Meanwhile, Tesla's quantitative assessment of its credit rating shows that Tesla has an excellent ability to meet current obligations, in particular the "phasing out of cash", despite the false reporting by the same analysts and media that characterize the Tesla drama tales. ,
In addition, Moody's has done nothing to indicate which factors could lead to a further downgrade or appreciation.
To sum up, Moody's is not responsible because it failed to improve the valuation of Tesla's debts, after production rates exceeded Tesla's goals and not Moody's expectations fulfilled. and Tesla maintained good liquidity and positive cash flows in the latter half of the year. In addition, Moody's is not very transparent in emphasizing the subjective qualitative ratings compared to 19459023 objective quantitative assessments of creditworthiness. After all, Moody's is neither transparent nor accountable unless it publishes publicly, which could lead to further downgrading or appreciation of Tesla's debt.
The moral of this story is that investors should remain cautious by relying not only on authorities or narratives Weber to make their investment decisions. Apparently, analysts, talking media heads, Twitter trolls or even Moody's should be your opinion. Instead, investors should look at the same raw information that all these commentators look at and form their own opinion.
Postscript for Elon Musk
With all due respect, Mr. Musk, your recent actions are firing the fire. Even though Tesla is not faced with a cash or liquidity problem, drastic price reductions and quick decisions that change within a week (closures) provide investors, analysts, and the media. Something has to be done about Tesla executives' seemingly frequent executions, even though the media increase the number of deviations in people's minds through availability errors and cover Tesla's departures more than other companies. In addition, your SEC filings greatly damage investors and increase risk. Even if you think it unfair, it may be best to follow the SEC's instructions in a particularly strict manner. In other words, even if the criticism is unfair, you strip the carpet of the critics and give them less criticism.