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Tesla Now Delivering Model S, But Cash Crunch Judgment Waits For Financials

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Tesla Model S

Tesla Model S

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One hurdle down: Tesla is now delivering production Model S electric cars to paying customers from its reservations list of 18,000 or so.

Next hurdle: Can Tesla Motors [NSDQ:TSLA] bring in enough cash from those sales, and ramp up production fast enough, to keep the company solvent?

It would appear the market thinks so, as Tesla stock has risen over the last six weeks from less than $28 a share to more than $32 a share.

MarketWatch analyst pessimistic

Nonetheless, a spate of recent articles have quoted MarketWatch financial analyst Jon Shinal suggesting that Tesla is "among the top candidates in Silicon Valley for a 2013 stock collapse" unless it secures additional funds.

Shinal noted on December 20 that Tesla spent down its cash through the third quarter of 2012, and would have been essentially out of money had it not drawn on the last of its $465 million in low-interest loans from the U.S. Department of Energy.

He notes that it had to lower its 2012 revenue forecasts in September, and had less than six months of cash on hand at the end of that month. And that Tesla's assets of $809 million were outweighed by its liabilities of $837 million.

One-year history of Tesla Motors stock prices [NSDQ:TSLA] on Jan 11, 2013, as shown on Yahoo Finance

One-year history of Tesla Motors stock prices [NSDQ:TSLA] on Jan 11, 2013, as shown on Yahoo Finance

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That stands to reason, of course: Tesla had just spent two years completing development of the 2012 Model S, and equipping its Fremont, California, assembly plant to build the car in volume.

And that all costs money.

'Cash flow positive' tweet

Tesla's Elon Musk tweeted on December 3 that the company had been "narrowly cash flow positive" the previous week. He hasn't repeated that tweet in any successive weeks.

The salient question is now: Can Tesla ramp up production quickly enough, and garner sufficient margin on each early Model S it sells, to keep the lights on, the vendors paid, and the production lines humming?

Tesla Motors isn't talking about its financials, and won't until it reports to shareholders on its year-end results--likely sometime in February.

2012 Tesla Model S

2012 Tesla Model S

Enlarge Photo

Analysts will pore over those figures to see if the company achieved its revenue projections--the midpoint of the range was $420 million--and whether it did actually deliver 3,000 or more cars.

But it's clear that the company is working hard to do everything it can to boost revenue and cut expenses.

High-dollar models first

With perhaps 3,000 Model S cars delivered by Dec 31--roughly in line with its September statement that it would deliver 2,700 to 3,225 cars, though down from its first 2012 estimate of 5,000 cars--the company says it's now building 200 cars a week or more.

And those cars have all been the most expensive models with the 85-kilowatt-hour battery packs, which means Tesla is building the Model S variants that earn it the most cash first.

That's led to some frustration among reservation holders for the 60-kWh version, which has now been EPA-certified at 208 miles of electric range.

But discussions on stock forums like SeekingAlpha offer the views of both investors bullish on Tesla stock and those who've shorted it.

Bulls vs bears

Often, the optimists focus more on the company's achievements, awards, and largely satisfied customers (much of that covered on this site).

2012 Tesla Model S

2012 Tesla Model S

Enlarge Photo

The pessimists, on the other hand, look more closely at the financials.

There's a nice roundup of the arguments on each side in a piece called "Is Tesla A Buy, A Short, Or A Stay-Away?"

A December article, "When Will the Tesla Investment Unravel?", notes that as of December 17, the seven preceding articles on the company had been favorable--indicating that sentiment among the site's authors and readers had shifted from bearish to bullish.

But one point made last week is worth considering.

Success priced in already?

In "History And Valuation Make Cash-Guzzling Tesla A Short" author Sneha Shah suggests that the stock price pretty much assumes that the company is already a success.

The car business is historically highly capital intensive, Shah notes, with very long product cycles and low profit margins of 2 to 5 percent.


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Comments (32)
  1. Personally, I think that companies that have good products and back-orders usually find money somewhere. So I am not too worried about them at this point.

    It would take a couple of years after start of production, if still losing money, before the money would likely dry up.
     
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  2. Haters gotta hate...
     
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  3. Jo Shinal's story on Tesla reads like a rather desperate attempt from a panicking shorter to turn his fortune around. It's mostly tricks and manipulation really: he takes the financial trends of the money burning start up phase and extrapolates from there, ignoring the fact that Tesla has since 3e quarter fillings moved steadily into the money making production phase. He throws in some lies about poor customer care and Tesla raising prices of yet-undelivered cars and makes a spectacularly inappropriate comparison with dot com bubble companies to makes his little FUD exercise complete, but if stock prices are any indication not too many people are buying into his nonsense.
     
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  4. I hope he loses a ton of money. I've always found the process of shorting distasteful.
     
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  5. I would add that many financial "instruments" such as shorting should be banned altogether. It it not there for the betterment of the companies being invested in (the whole point of the Stock exchange). It is just Big Financials gambling - such as High Frequency Trading, something else that should be banned. Makes a mockery of the whole financial market.
     
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  6. @Chris O: Your point about Shinal extrapolating trends from non-production quarters to production quarters is a nice way of stating it.

    In response to your "panicking shorter" comment, I presume you meant his arguments are similar to those that would be used by such a person. I note the following statement from Shinal: "The columnist has no position in Tesla shares, long or short."
     
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  7. Thanks for pointing that out John. Maybe you know my motto though for cases like this: every "expert" has an agenda. I'm sure it's worth his while one way or the other to come up with concoctions like this unless of course it really is just malice and/or stupidity. Either way it's a shame really that the Wallstreet Journal should lend a platform for rubish like this.
     
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  8. @Chris O: Not only every expert has an agenda. Every commenter does too. Everyone has an agenda!

    But I don't think being a short, "malice," or "stupidity" are the ONLY three possible explanations for the views Shinal expressed in his article. Might it not be possible that he simply reads the numbers differently than you do?

    Or is any mention of Tesla Motors at all that falls short of uncritical enthusiasm obviously caused by a malevolent desire to see the company fail?
     
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  9. One might gather from my comment history that I have a Model S reservation and I am long on Tesla stock. With full disclosures accounted, I think the answer to your question is clearly "YES! They are ALL Demon spawn!". I'm glad we were able to get that cleared up. ;-)
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  10. @Norm: Thank goodness, someone's finally cleared that up for me. Demon spawn, eh? Good to know. Now I understand. :)
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  11. Actually, I agree that those aren't the only possible motivations. In fact, considering that his focus (in both pieces) is on the loans that the Feds provided, I rather suspect his motivation is political.

    But as to his ability to read numbers, its pretty unforgivable to just ignore the reality that shapes TSLA financials.

    The Sept 30 data he bases his entire thesis on consists of results obtained while Tesla was shifting from an R&D business to a manufacturing business.

    Projecting the past forward in this case is absurd. This is highlighted by the fact that its likely that by the time he published this piece, Tesla was producing more cars in a week than it had in the entirety of the year leading to its Sept 30 report.
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  12. There are more comments in this thread
  13. Thanks for the great investing overview, John. I learned a new term yesterday while reading a Motley Fool article on Tesla - "ten-bagger". Sure Tesla could go belly up, but the upside...I didn't buy Apple at 26 and I'm not going to miss an opportunity like that again.
     
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  14. There was a day when Apple stock traded for a few dollars. I wonder at what point the pundits started to claim the stock was wildly overrated $50? $100? Today it trades at $520. Now a coup like that is not very likely in grimy car business but OTOH: all it takes is a serious breakthrough in battery tech to turn a company like Tesla from fringe to major player.

    ...and considering the strong demand for its product there is just no way any of the numbers add up to bankruptcy any time soon. Quite the opposite.
     
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  15. You could also buy AAPL at $8 if you had faith.

    NOK is only around $4 (was as low as less than $2 few months ago).

    Whether TSLA is a good investment depends on how well Tesla can figure out production ramp. Those skills will be equally important in the launch of X model and the "blue star" model.

    I believe Tesla is still 1 to 2 models away from being solid profitable. But I like the trend so far.
     
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  16. I like to look at the car or product as an indication of how well a company is doing. Like Coda, the build quality is a little low and the car isn't exactly competitive. Then there's Fisker, good build quality but there have been big issues, even though it looks fast it really isn't, and despite it's size the interior especially in the back is cramped. But Tesla's Model S appears to be an amazing strong product in every aspect. There are a few things on the Model S I don't like but it's a functionality thing for me, otherwise being a long time car enthusiast I can tell that not only is the car on par with rival gas cars but a lot of its features one up the competition, so I think they still have the best chance of survival.
     
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  17. Among all the "startups" of EVs, Tesla is the "ONLY" one that has a chance to survive in the long term.

    That is also why both Toyota and Mercedez have invested in it and GM has used it as a "target" of competition.
     
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  18. When Toyota and Mercedes-Benz invested in Tesla I thought that was exciting news. It really says a lot when a giant like Toyota, and one of the oldest companies like Mercedes-Benz jump in, invest, and start working with Tesla.
     
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  19. I would go long with Tesla.
     
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  20. Comparisons to dot-com busts don't make sense because those companies rarely had products people truly wanted or needed - all fluff and no substance. Tesla has a very highly desired product, and so seems to have a much better chance at survival. I don't have the stomach to buy their stock yet, but I'd love to buy one of their cars someday.
     
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  21. Yes, Tesla has a very highly desired product in the Model S. Now the only thing holding Tesla back is its ability to ramp up production and control costs so it can become profitable. Tesla has technically only one car right now since they stopped production on the Roadster. Tesla also has a luxery sport utility called the Model X which is suppose to be released come 2014. As to marketing for the masses is expected to come after 2015 with the Blue star which will be in the $30,000 to $35,000 range.
     
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  22. "In "History And Valuation Make Cash-Guzzling Tesla A Short" author Sneha Shah suggests that the stock price pretty much assumes that the company is already a success."

    I'd suggest that the large short position also influences the stock price in the opposite direction, which should mean the stock price is not excessively optimistic.
     
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  23. Basing a financial forecast on Sept 30 data is absurd. Hasn't Shinal noticed that since then, Tesla delivered more than 2,000 cars in 2012 at roughly $100 K each? That's $200 million.

    And that they're now turning out 400 cars a week at an average of perhaps $80 K each? That's a cash flow of $32 million per week. At that rate--and with a backlog of 15,000 orders, there's no reason it shouldn't continue--they'll generate $1.5 billion in revenue in 2013.
     
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  24. I think looking at the stock price is a poor way to evaluate a company's success or future. Our financial system should be changed to force investors to be long term focused. If you buy a stock you should be required to hold it for a year or longer, not buy it one minute and sell it a microsecond later. This short term thinking is causing us to make decisions not good for the public.
    That said, you can look at Tesla's financial data and see the problem. They are building a $200,000 car that they are selling for $100,000. No wonder people love it. Their sales and marketing costs were greater than their sales, their long term debt keeps growing by $100-200M per quarter, they had to sell $200M in new stock to be cash positive. Winner?
     
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  25. Really, you want the government to ban all stock ownership of any entity if for a shorter period than one year...?!?! Yeah, that's just what our country needs, the government now dictating how long each of us can own stocks for... I'll pass, thank you very much!

    Overall, not really big news, IMHO. Let's comment after the finacials are finally published and I hope all of us hope for, and expect, the best. As long as the product seels well and reviews are good, any short-term cash flow problem can be answered with additional fundraising.

    As others have noted, using a quarter where expenses were high just before launch is ridiculous and misleading.
     
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  26. Where did you get that they are selling a $200K car for $100K? Tesla has already stated that they have a 25% profit margin on the Model S, it is in their SEC filing. I bet you think that GM is loosing $100K on every Volt they make as well. Looking at a companies future or success should be looked at by the demand of their product, and in Tesla's case, that isn't an issue. They already have more reservations on the books than they can produce in a single year. I do agree you should have to hold a stock for a given amount of time, say 24 hours AND add a transaction tax on every trade. That will keep these microsecond traders from wrecking the system.
     
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  27. Marks, you obviously know nothing about Tesla. "Their sales and marketing costs were greater than their sales". haha. They have been spending nearly all their money there where it counts: in engineering, R&D and production facilities. They have not payed a single ad anywhere. Up 'till now there have only been a handful of Tesla stores.

    And where did you get the idea that the Model S is a 200,000 car? Got any evidence? You doubt they can sell it for between 60k and 100k and make a profit because it costs them less to produce? Where is your evidence?
     
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  28. correction: "less to produce" --> "more to produce"
     
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