Save the date: August 1 brings another ugly end result from Tesla (TSLA).
And in retrospect, a quarter of an insane amount of money and questions from Wall Street and Twitter trolls on a Tesla capital increase.
Gordon Johnson, Managing Director of Vertical Group, tells TheStreet that he and his team believe Tesla will leave the quarter with less than $ 1 billion in cash. Frightening. Johnson argues that the money actually available to the company is much less than it appears to investors.
If suppliers fail to help Tesla and the automaker is unable to raise the necessary funds, the company could be heading for a cash event, Johnson claims.
News from The Wall Street Journal has recently appeared as if Tesla is asking some of its suppliers for repayments on payments already made. That did not seem to be the case after Tesla TheStreet clarified the situation.
That said, the automaker's actions ̵
Here's a peak in the numbers at Tesla.
- Tesla's TheStreet's latest weekly column, focussing on one of the most volatile and polarizing stocks on the planet in Tesla. Every week, the column will take a look at Tesla, so investors have the whole story about the electric car maker.
The cheapest Models 3 that can drive out of the showroom today will exclude $ 49,000 in VAT. If Tesla can produce 5,000 Model 3 a week, sold for $ 50,000, it will generate $ 6.5 billion in revenue over the next six months.
However, this turnover could be meaningless, depending on how much of it falls into the final results.
A recent analysis by the automotive consultancy Munro & Associates confirms that the Model 3 can potentially achieve 30% profit margins. Presumably, his premium models would achieve even higher margins.
Let's assume that Model 3 will achieve an impressive 46% profit margin in the second half of 2018 with some very generous assumptions. That will only bring Tesla $ 3 billion before taxes. The statement "only $ 3 billion" before taxes sounds crazy, because that's a lot of money for a cash-bleeding entity like Tesla. But it is unlikely to go far enough to feed the beast of an electric car maker in ramp-up mode and Elon Musk's desire to move faster into new models / geographies.
"We see that, given the company's current activities and plans for China and the Model Y, Tesla may raise up to $ 10 billion in debt and refinance debt," said David Tamberinno of Goldman Sachs. "This capital increase could be done in various forms and combinations, including convertibles, bonds and a capital increase. "
"While our estimates for the production of Model 3 are below target, we model the cash requirement in a scenario where the company is producing 10 vehicles / week Model 3 vehicles sustainably in 2020 – and progressing with the Model Y and the In this scenario, Tesla's capital requirement would be half of our estimate, "said Tamberrino.
In other words, even on rosy assumptions, Tesla would probably need to raise at least $ 5 billion by 2020.
I do not want to "
These words were spoken by Musk at the company's conference call in the first quarter when he was asked to raise capital this year.
The first gigafactory in Nevada was originally built for around 5 Tesla's China factory, Gigafactory 3, could easily surpass that amount, though it will also accommodate auto production – something that will only start two years after construction starts, according to the company.
With in other words, his China ambitions will burn more money for Tesla for several years rather than building it until the first car rolls off the production line.
According to John Engle, President of Almington Capital, a venture capital and private equity firm. A company outside of Chicago, it is difficult to determine the cost of the project.General Motors (GM) invested in five new Chinese factories five years ago while 5.6 billion dollars implemented.
"We would call the minimum basic cost of factory planning to produce 500,000 vehicles a year, but in reality, the cost is likely to be higher as Gigafactory 3 is designed to build both cars and batteries," said Engle. "A $ 6 billion price tag is possible."
In addition, Musk said that the Model Y will noticeably increase in importance in 2019, but like the factory, will not make a positive contribution to the Free Cash flow, as production will only start in 2020. Also worth mentioning is the company's expanding supercharger network, where construction is now facing some delays. There are also the sporty roadster and the large Tesla semitrailer in the pipeline.
Again, the need for cash is no secret. But it is a major concern.
The Bottom Line
Needham analyst Rajvindra Gill downgraded Tesla's shares recently under these cash concerns to underperform. With expiring federal tax credits for buyers, high production costs, a projected $ 6 billion free cash flow by 2020 and too slow gross margin improvement, he says, Tesla is overvalued at the current level.
Gill is not alone
"We continue to worry that free cash flow (19459019) could lead to more outflow, as the much-announced production rate improvement … means that many more vehicles were produced in the 2Q (53,339) as delivered (40,740), indicating a large investment in working capital compared to finished goods inventory, "said Morgan Stanley analyst Adam Jonas ahead of Tesla's earnings report.
Jonas added, "In addition, we are worried about the margin, as overtime, premium freight and other expenses are driving up production in seemingly inefficient ways (eg building an additional" tent "assembly line in one) provisional device) next to its main assembly plant. "
Not every Tesla numerical breaker is completely negative. Ben Kallo, senior research analyst at RW Baird, said: "Tesla has a differentiated ability to attract new capital, especially as the company builds its business, and we believe Tesla has access to the capital markets, especially if the company is milestones Continues to grow and grow its business. "
Romit Shaw, Managing Director and Senior Analyst at Nomura, was more optimistic. He said, "If Tesla can go according to plan, we believe that the tale of bankruptcy risk will go away, reducing short-term interests and driving the stock higher."
Remarkably, there is a big difference in transforming a profitable business and then raising capital for growth needs rather than not becoming profitable and raising capital to stay alive. Many on Wall Street realize this, while those who are not ready to burn themselves.
The best course of action for Tesla then? Musk should just win an investment bank for another high-yield bond.
Oh, stay with Twitter.