Parching a dry throat
Tesla (TSLA) closing its most recent capital raise on May 15 th collecting approximately $ 2.7 B of cash from a sale of ~ 3.55 MM shares with a 2% convertible senior note raise of $ 1.84B. $ 249 each.
After the poor 1Q-2019 financials which saw a Net Income (loss) of $ 668 million, and a decrease in Net Cash & Equivalents of $ 1,594 B (after the repayment of the failed 0.25% Convertible Senior Notes 2019 offering), this cash injection was the proverbial gallon of water guzzled down into the belly of dehydrated bank. $ 2.20 B, with Accounts Receivable at $ 1
Halfway through 2Q-2019 and the jury is still TSLA vehicles. We have the Insideevs.com view of May 2019 US deliveries within the next 7-10 days, followed by information on Europe and China deliveries tracked by a cadre of valued Seeking Alpha contributors not long thereafter. TSLA models in Q1, at a high level, would seem to have become relatively constant in Q2 (without news of a series of price increases). This could change in the run-in of the last five weeks of the quarter. My view is that TSLA is likely to pay net income (loss) of ~ $ 500M, a similar result to Q1. A slightly reduced loss based on what I would hope is a better thought out and planned delivery effort on ships to overseas markets. Autonomy Day
Held on Monday 22 Delivered at the End of Q2 as compared to Q1.
Held on Monday 22 nd April 2019, the event was a showcase of the 'future' of TSLA. I am not going to go into detail about the event, but simply provide an overview of what is covered, which I have sourced from CleanTechnica:
- Purpose of The Autonomous Day – The Company (19659008) The Full Self Driving [FSD] Chip (presented by Pete Bannon) – the system, the timeline of the system
- The Neural Network (presented by Andrej Karpathy) – a simple example of how it works, followed by Tesla specifics, limitations of self-driving simulations and inaccuracies, and how they are used to train the system  The Software (presented by Stuart Bowers) – Short in time compared to the FSD Chip and Neural Network presentations, how to use the hardware to learn how to drive
- Redundancies, the Master Plan and Robotaxi's –
- Explanation of the redundancies built in to mitigate any single points of failure
- Launch of first robotaxi in CY2020 (mentions that he is criticized for overly ambitious timelines, but contends
- Production of the Model Y and Semi in full in CY2020
- TSLA already has in that can no-one catch up to
- Producing 10,000 Models S, X and 3 per week by end of CY2019
- Physical demonstrations, etc. –
Let's be clear, this was a presentation to the investment community, not to fans, associates and those who believe the "mission". Per the CleanTechnica article linked above "as the presentation starts, I'm struck by how plain the room is. The sole purpose of this event is to present the rest of the story. TSLA stated or by 'Tesla was silent' so ins Deutsche: Tesla was still a member of the TSA. what we really mean 'language, it was an abject failure, it was not' wow 'and' stun ' 24 th April:
- UBS – a 20 minute test drive with two (2) driver interventions (in a non-complex environment in fine weather). Needham – believes Level 2 (not L4 / L5) wants to reach mass market in CY2020. Skeptical of robo-taxi initiative due to significant regulation of hurdles
- Morgan Stanley (Adam Jonas) – paraphrased; timing two days before TSLA rather than just the earnings.
- Cowen (Jeffrey Osborne) "We see a significant amount of technology and execution risk in the shift from competing to just electrification, to Tesla so beating Nvidia in hardware, Google in software, and building a better ride-hailing service than current ride hailing leaders ". Tesla after the event "[more]" Roth Capital Partner (Craig Irwin) "We Saw the Autonomous Investor Day as Underwhelming, Tesla.
- made bold claims that were missing the substance that drives credibility.
- ISI Evercore (Arndt Ellinghorst) "We remain encouraged by Tesla's vision and future growth prospects (brand value, global model 3 and Y TAM, Semi, etc.), but there is an uncertainty around near-term demand vs. previous bullish forecasts and growth can not stall for a growth company
- Goldman Sachs (David Tamberrino) "Heading Into and Coming." out-of-the-fall, there were issues about demand – but just as much as the drop-off in model S / X deliveries in 1Q19. " Oppenheimer (Colin Rusch) "Beyond Model 3 demand and cost reduction driving cash flow, we believe the Model S & X refresh cycle and pricing strategy are in focus for short-term investors while the longer term story is increasingly weighted to China sell-through "
Analyst comments sources:
Tesla's Autonomy Investor Day – Analysts Comment
Post Autonomy Day reaction
After the failure of the Day of Independence Day, the writing on the wall is finished. TSLA knew the results were about to be released for 1Q were terrible. The Autonomy Day, which can now be considered as a 150 to 1 roughie, ran last by seven furlongs, and this week is going to get ugly. And it did.
Underwhelmed analysts with clients to service, reputations to maintain (perhaps with some damage to mitigate) needed to take action. And they did. 4Q result, backing up a similar result in 3Q.
Let's take 25 days on either side of the Autonomy Day.
Leading into Autonomy Day, even after the end of the 1Q-2019, price action and volumes were muted, other than the blip from $ 291 to $ 268 on 4 th April as the production and deliveries number for 1Q emerged. But even then, there is an atypical 'steady as you are' daily volume and the price trundled along in a $ 265 to $ 275 channel. Then Autonomy Day, and then the 1Q-2019 results. A week of penance sub- $ 240, and up on a Friday to $ 255 after announcing the capital raise, held onto the following Monday, then the slide slide slippity slide to where it ends on Friday before Memorial Day.
Does anyone think that the recent free fall of the TSLA share price is not related to the failure of the Autonomy Day? This is what you are looking for and the investment community to 'hold the line'. Do not look at what we're doing, and not in five years, but in one year or less! It was an utter patent failure.
The capital raise almost a year too late
The perfect time for the capital raise would have been 2Q-2018 into 3Q-2018 TSLA could grow organically, or did not need another capital raise. He has said he has a lot of things that have become optimistic (or late in terms of timing), and he has not had any impact on him as CEO, or TSLA as a business, and how TSLA was viewed by the investment community at this point in time.
It was not that investors would have loved it. But there were still plenty of believers in 2018. Many would chalk this up to another instance of 'Watch what I do not say' from Musk. To fuel the growth narrative, based on phenomenal Model 3 reservations and interest, a capital raise has been defined for future Gigafactories and development of future models. Hell, at that time they could even be called solar and storage! Spend some time developing the PowerPoint slides, develop the narrative ('the story') you are selling and sell it. $ 3B to $ 5B, a split of equity and debt (a mix of convertible and 2025+ bonds). The cash flow is estimated to be in line with the TSLA operations.
The cash flows are cash flows from Financing Activities by Vehicle Produced since 2008 (rolling 12 months basis since 4Q-2010) and the cumulative Net Cash from Financing Activities. The previous capital raise was in 3Q-2017. If TSLA were to continue to fuel the growth narrative, 2Q-2018 thru 3Q-2018 was the time to do it. The TSLA share price was hovering above $ 300 from June 2018 thru August 2018. The investment market was waiting for the model 3 ramp. TSLA riding high
Wise counsel vs tin ears
Lastly, some speculation from the author of the previous CFO. Someone as deep into the TSLA financials as the previous CFO Deepak Ahuja surely would have raised this with the CEO? TSLA had more than enough senior executives and you would think the best understanding of TSLA financials of anyone? Surely he would have the opportunity to capitalize on the high TSLA share the upcoming Model 3 ramp? Its timing to leave immediately after the Q4-2018 earnings release (announced with a comment at the end of the earnings call by Elon). I do not know, maybe, maybe not. I do know, from my own working experience on multi-billion capital projects, that does not have proactive leadership at a senior level to chase and secure the right level of funding, it is the project sanction / final investment decision or on an annual basis, does more jerk and reactionary comments.
It's all about 'setting the table' for success. Failure to have the right level of funding in place at a project level cloaks all decisions. TSLA was a catastrophic miscalculation. Most of the SF (Special Forces) branches of various countries are called armed forces spend on exponential amount of time. The British Special Air Service (SAS) are known to apply the Six-P's when planning missions / operations – Proper Preparation Prevents Piss Poor Performance. TSLA could well get some advice and spend more time on the planning. TSLA has
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha).
Additional disclosure: Author's Additional Disclosure: Investors are always reminded that before investing any investment, you should do so directly or indirectly mentioned in this article. Investors should therefore consider seeking advice from a broker or financial adviser before making any investment decisions.