The fact that Tesla (NASDAQ: TSLA) is burning through mountains of cash is nothing new.
But do you know how fast? The actual numbers are daunting.
Let me put it to you this way: In the time it would take for you to read through this entire article, Tesla would have burned through at least $8,000 — if not more. That’s over $480,000 an hour.
Crazy, right? And yet, investors don’t seem too concerned.
Tesla, of course, would dispute this analysis because its increasing output of its long-awaited Model 3 will see money coming in rather than out. With its current cash burn rate, however, the Model 3 looks like it won’t be generating a return anytime soon, mainly because production is an absolute mess.
The electric vehicle (EV) manufacturer has burned through a record amount in the second quarter of this year — about $1.2 billion, to be exact — in an attempt to push production of the Model 3, labeling it as being in “production hell.”
Tesla had hoped to ramp up production to 5,000 units per week by December 2017, but by the end of November, it had only achieved a total production output numbering in the high hundreds, at best.
And it’s unlikely that this will be enough. It seems that Elon Musk’s company will need to raise cash in some other way at some point.
But in the meantime, Musk is in full-on showman mode, having designs on hitting up Tesla’s wealthiest supporters and most futuristic customers for more money.
Last week, Musk said he would be asking customers to pay the $250,000 price tag up front for a Founders Series Roadster, even though customers won’t be able to get the car for another two years.
If all 1,000 cars were sold, that would bring in a much needed $250 million to Tesla.
You gotta do what you gotta do. And if Musk can bring in $250 million by selling 1,000 special edition Roadsters years ahead of actually building the car, it would give Tesla a bit of breathing room on the cash front.
Customers can also preorder electric semitrucks for $5,000, even though they won’t be going into production until 2019.
Musk has to be the greatest car salesman who’s ever lived, and his latest moves show that observation — without a doubt.
Tesla has also sought to raise some $1.8 billion through a bond offering, leaving it with about $5 billion or so in cash, says UBS analyst Colin Langan.
Kevin Tynan, an analyst with Bloomberg Intelligence, is estimating that Tesla will require at least $2 billion in fresh capital by mid-2018 if it’s to stay above water. He states: “Whether they can last another 10 months or a year, [Musk] needs money, and quickly.”
But despite its fundraising efforts, Tesla’s current rate of spending is so aggressive that Langan says he’s expecting it to run out of cash in about four quarters or so, burning about $900 million in the third quarter alone.
Meanwhile, the company also has $1.4 billion in debt due at the end of 2018.
Bloomberg is estimating that, at its current rate of cash burn, Tesla will exhaust its entire cash reserves during the first week of August 2018 — Monday, August 6, 2018, at 2:17 a.m. (ET), if you want to be precise.
Another option for raising some much-needed capital, short of a miraculous release of all production bottlenecks in December, would be to sell more equity. This wouldn’t be the best course of action, considering it would dilute existing shareholders, but options are limited.
Tesla is already drawing down on more of its revolving credit than ever before. And while the bond market is a possible route, it might not be especially welcoming right now.
It remains to be seen if Tesla will be able to achieve the promised 5,000 cars per work target by late March 2018.
And even though it isn’t running out of cash yet, it may run dangerously low on investor patience and brand enthusiasm unless things start heading in the right direction within the next three months.
For now, investor confidence, though battered, is holding. Everyone is on edge.
But we wouldn’t be talking about Tesla otherwise.
That’s all for now.
Until next time,
John Peterson
Pro Trader Today