Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Tesla’s stock is flying in after-hours trading on Tuesday because…well, it’s tough to say. What isn’t hard to see is that the stock market's ample enthusiasm enables Elon Musk's company to keep burning cash at an ever-higher intensity.

For the third quarter, Tesla Motors missed the consensus estimate of adjusted earnings, got nowhere near the GAAP estimate, and trimmed guidance for deliveries this year. The stock, which attracts many a short seller along with an army of fans, bounced anyway.

Perhaps the cut to guidance - which was expected - wasn’t as bad as feared. Maybe the company’s commentary on order rates for the Model S and Model X struck a chord, even if “it is too early to draw firm conclusions.” Or, just possibly, there’s a class of investors fixated on Musk’s vision who just don’t really care.

The latter are vital to Tesla’s continued expansion. Look at the chart below, which shows Tesla’s quarterly free cash flow - operating cash flow less capital expenditure - since the start of 2010. Those bars represent $3.73 billion of cash burned, data compiled by Bloomberg show. And as Tesla’s ambitions have taken off, so has its burn rate: the past four quarters alone account for almost 60 percent of the total.

tesla image

Several Wall Street analysts have scaled back their targets (and slashed earnings estimates) for Tesla in recent months. Yet optimism on Tesla’s cash flow remains. Tesla’s negative free cash flow of almost $600 million dollars in the third quarter was more than double the consensus forecast. Analysts already underestimated Tesla’s capex bill by about $77 million. Based on Tesla’s latest guidance, they're also too optimistic about the fourth quarter’s spending - to the tune of almost $100 million. Musk, speaking on Tuesday's conference call, said the company has an "aspiration" to be cash flow positive in the first quarter.

It is such optimism that enables Tesla to tap the markets to replenish its coffers. The company actually ended the third quarter with $275 million more in its cash pile than at the end of June, mainly because it raised $739 million selling new shares. The fact that almost two thirds of that cash didn’t make it to the end of the quarter is probably just a mere detail for Tuesday evening’s buyers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Timothy L. O'Brien at tobrien46@bloomberg.net