Tesla Tumbles as Outlook Cut, Loan May Need to Be Amended

Tesla Motors Inc. Chief Executive Officer Elon Musk
Tesla Motors Inc. Chief Executive Officer Elon Musk last week declined to confirm that the company will deliver 5,000 of its Model S sedans this year. Photographer: Ramin Talaie/Bloomberg

Tesla Motors Inc., the electric-car maker led by Elon Musk, fell the most in eight months after cutting its revenue outlook for the third quarter because of supplier shortcomings and other delays in accelerating production of its Model S sedan.

Tesla slid 9.8 percent to $27.66 at the close in New York, the biggest decline since Jan. 13. The company, based in Palo Alto, California, said in a regulatory filing today that it expects $44 million to $46 million in third-quarter sales, compared with the $83.1 million average of 12 analyst estimates compiled by Bloomberg.

Chief Executive Officer Musk last week in an interview declined to confirm that the company will deliver 5,000 of its Model S sedans this year. Tesla now expects to deliver 200 to 225 Model S cars in the third quarter and 2,500 to 3,000 in the fourth. Tesla forecast that gross margin will turn positive in the fourth quarter as production accelerates.

“Elon Musk is very concerned about quality,” said Alan Baum, principal of auto-industry forecaster Baum & Associates in West Bloomfield, Michigan. “He’s been driving every vehicle off the line. That’s an indicator of how important that quality issue is to him. He’s going to deal with those quality issues before the vehicles are out the door.”

The company said in its filing that its “main focus is on quality, we have methodically increased our Model S production at a rate slower than we had earlier anticipated. Certain suppliers have experienced delays in meeting our demand and we continue to focus on supplier capabilities and constraints.”

The electric-car maker also said it’s making an all-new car “with new employees using new equipment.” Tesla now forecasts full-year revenue of $400 million to $440 million, down from $560 million to $600 million.

Quality Concern

Quality issues tied to suppliers have dogged Fisker Automotive Inc.’s Karma, which failed to win a recommendation from Consumer Reports. The magazine’s tests showed flaws in the luxury plug-in hybrid’s interior design and reliability.

“Tesla is mindful of what’s happened with Fisker and they’re very concerned that there are no hiccups in their launch,” Baum said.

The company continues to “expect to be close to free cash flow break-even at the end of 2012’s fourth quarter,” Jeff Evanson, a company spokesman, said in an e-mail.

Already the company’s largest shareholder, Musk may buy 33,311 more shares, the company said in a related filing. Tesla, whose investors include Toyota Motor Corp. and Daimler AG, said it now expects to exceed its plan to produce 20,000 of the electric cars next year, when it projected it would earn its first profit.

Energy Department

The company amended its loan agreement with the U.S. Energy Department and may need to do so again if it fails to raise enough money from investors.

“We currently anticipate that without raising capital in addition to this offering, we would need to seek an amendment from the DOE to modify the total liabilities to stockholder equity covenant for the quarter ending March 31, 2014, and the two subsequent quarters,” the company said in the filing.

Tesla has said it plans to begin repaying its Energy Department loans in the fourth quarter. There are no changes to payment terms, Evanson said in the e-mail.

CFO’s Comments

“Given the growth of Tesla and as they look at our business plan and see the amount of cash we will generate, they would like to explore possibilities that would result in a repayment earlier than 10 years, when we are in a financially sound situation and have access to multiple capital markets alternatives,” Deepak Ahuja, Tesla’s chief financial officer, said today in a phone interview.

In a separate filing, Tesla said it plans to sell 4.34 million additional shares and expects to receive net proceeds of $128.3 million, or $147.6 million if the underwriter, Goldman Sachs Group Inc., exercises its option to purchase additional shares in full.

An additional offering “could alleviate capital concerns that have increased in recent quarters,” Amir Rozwadowski, a Barclays Plc analyst, said in a report today in which he restated his overweight rating on the shares.

“While the company’s reduced near-term production outlook does elevate concerns on its ability to ramp manufacturing, we do not believe it is wholly unexpected,” Rozwadowski said, owing to the company’s “aggressive” production schedule for 2012’s fourth quarter.

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