Tesla Cash Under Pressure With SolarCity Purchase on Horizon

What to Watch for in Tesla's Earnings
  • Company working to increase production of cars, batteries
  • Analyst estimates indicate end of adjusted losses is near

The prospect of Tesla Motors Inc. starting to generate quarterly profits may do little to remove a key overhang on the electric-car maker: The pressure on its cash as the company ramps up deliveries, absorbs a solar-panel installer, and invests tens of billions in auto and battery factories.

The company run by Chief Executive Officer Elon Musk is forecast to report a quarterly loss of about 60 cents a share later today after adjustments -- the last loss on that basis for the foreseeable future, based on analysts’ estimates. Of greater concern to investors may be the Palo Alto, California-based company’s free cash flow, which is projected as solidly negative next year and most of the decade.

The cash squeeze is made more intense by the planned acquisition of SolarCity Corp., which has debt coming due and, as analysts see it, no profit on the horizon. While Tesla argues that bringing the two together will reduce costs and boost sales, it also puts a strain on cash management, said Joseph Spak of RBC Capital.

“The vision of TSLA/SCTY and solar+storage is admirable and long-term correct but the financial sense, especially near-term is less than clear,” Spak said in a note to clients. “The long-term dream/vision is bigger, but so is the near-term cash burn.”

Tesla shares have fallen about 14 percent since this year’s closing high on April 6. The stock was little changed at $227.10 at 12:26 p.m. in New York.

Tesla wants to buy SolarCity to create “the world’s leading sustainable energy company,” according to an Aug. 1 investor presentation. Musk envisions streamlining the sales and customer-service experience, with one Tesla truck coming to the home of electric vehicle owners to install three additional products: solar panels, a home battery known as the Powerwall and a home charger for the vehicle. 

Investors will be watching for updates to the Tesla Energy side of the business, from sales of Powerwalls to larger Powerpacks for utilities, said Ben Kallo, an analyst with Robert W. Baird & Co. In past earnings reports, the company has provided limited details on the Energy business.

“We believe more investors will be willing to view TSLA as a technology company/category creator as it diversifies its revenue streams,” he wrote.

Other Progress

Today’s report may also provide signs of progress or further challenges to meeting ambitious production goals. The company missed its first two quarterly sales targets and said in July it expects to deliver 79,180 vehicles this year, compared with its previous guidance of 80,000 to 90,000. That may not be enough to imperil the goal of making 500,000 cars a year by 2018, but every manufacturing setback raises questions.

Any updates on plans to start delivering Model 3 cars next year or completion of the company’s massive battery factory in Nevada will be closely watched, as will reports on the number of sales and service centers around the world.

The conference call with analysts will also give Musk an opportunity to discuss his “Master Plan, Part Deux,” the 1,500-word manifesto that sees Tesla expanding its lineup to include a pickup, a semi truck, a bus -- not to mention making its increasingly autonomous vehicles available for fleets and ride-sharing. 

On the autonomy front, Musk may discuss plans to improve Autopilot, its package of driver-assist features, which has been under scrutiny following a fatal Florida crash in May that spurred an investigation by U.S. safety regulators and criticism from Consumer Reports magazine.

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