Tesla Falls After Analyst Calls Its Cash Burn ‘Eye Watering’

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Tesla Tumbles on Morgan Stanley `Eye Watering` Cash Call

Tesla Motors Inc. fell Thursday after Morgan Stanley said the company’s “eye watering” use of cash puts more pressure on a good production start for the Model X sport utility vehicle.

Shares of the electric-car maker led by Chief Executive Officer Elon Musk fell 2.1 percent to $225.68 at 9:37 a.m. New York time. The shares had gained 3.6 percent so far this year through Wednesday, outpacing the 1.4 percent gain by the Russell 1000 Index.

After Wednesday’s close, Tesla reported an adjusted loss of 36 cents a share, narrower than the 49-cent loss estimated by analysts. The Palo Alto, California-based company also said its cash fell 21 percent to $1.51 billion since 2014 as the company invests in a massive battery factory in Nevada and development of the Model X.

Tesla would exhaust its remaining cash in about three quarters at the current burn rate, assuming no external sources of capital infusion or warehouse facility draw, Adam Jonas of Morgan Stanley said in the note.

“Cash burn was eye watering, raising the stakes for an on-time and good quality Model X launch,” he wrote.

Tesla said deliveries of the SUV would begin in the third quarter after at least two delays.

“I drove the latest prototype today, and it’s like, ‘Wow,’” Musk told analysts Wednesday on a conference call.

Quarterly Assembly

Tesla expects to deliver 10,000 to 11,000 Model S sedans in the second quarter, indicating that production at the company’s Fremont, California, auto-assembly plant will steadily increase.

“The delivery guide for next quarter was less than what people were looking for,” said Brian Johnson, an analyst with Barclays Plc. “And they seemed to hint that ramping the Model X significantly in the fourth quarter is what will get them to the 55,000 for the year.”

Andrew Fung of CLSA said the second-quarter forecast contributed to widening his free cash flow estimate for the year to $900 million from $600 million, “which suggests an increasing likelihood that Tesla will need to raise additional capital ahead of additional investments” for the so-called gigafactory and the Model 3, its $35,000 car for the mass-luxury market.

Musk said Wednesday that progress is accelerating on construction of the gigafactory. It’s now on track to begin production of cells, modules and full packs by 2016 and could expand its capacity by 50 percent to meet the “staggering” demand for stationary storage products. Three months ago, the plan was only to be able to assemble battery packs next year.

2015 Target

The factory under construction in Sparks, Nevada, near the California border, is intended to provide scale that reduces battery costs for both cars and storage products by at least 30 percent.

Tesla also showed progress in its main auto business: accelerating the pace of production and boosting the average sales price. Musk reassured investors that the company will meet its projected 55,000 car deliveries this year, saying output would increase significantly in the fourth quarter, when cash flow should turn positive.

Musk said customers may be able to configure orders as soon as July.

“The X is going to be a great car,” he said. “This is by far the best SUV.”

The Model 3 will probably be revealed next March and begin deliveries by late 2017, he said.

Stationary Batteries

Last week, Tesla unveiled stationary battery packs for homes, businesses and utilities. Musk said Tesla already has 38,000 orders from around the world for Powerwall, the home energy product, and 2,500 for the industrial-sized Powerpack. That demand is changing plans for battery output at the gigafactory.

“The sheer volume of demand here is just staggering,” said Musk. “We could easily have the entire gigafactory just do stationary storage. But we need to do cars too -- we have this whole plant in Fremont making cars. Cars get the priority. But it feels like, man, the stationary storage demand is just nutty. Like worldwide, it’s just crazy.”

States like California see energy storage as a critical tool to better manage the electric grid, integrate a growing amount of solar and wind and reduce greenhouse gas emissions. Tesla announced several partnerships with utilities like Edison International’s Southern California Edison as well as Amazon.com Inc., and Jackson Family Wines.

Energy Economics

Musk was asked about a report that SolarCity Corp., where he is chairman, isn’t distributing the 7 kilowatt-hour battery - - the one that can be used daily -- for residential customers because it doesn’t yet make economic sense.

SolarCity is instead offering the 10 kilowatt-hour battery, which is intended for only occasional use, because most U.S. utilities are more affordable than solar with batteries, he said.

“If somebody wants to do daily cycling, basically go off grid, it’s going to be more expensive than being on grid,” Musk said. “This doesn’t mean that people won’t buy it, because there are people who want to go off grid on principle, or they just want to be independent. And that’s what the SolarCity comment is about.”

JB Straubel, Tesla’s chief technology officer, pointed out that SolarCity doesn’t operate in Europe and that the Powerwall’s main markets are Germany and Australia.

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