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.

As any Republican will tell you, 2016 is the year of the superlative.

A day after that message was hammered home to the GOP, Tesla Motors' Elon Musk amped up his message to the masses. On Wednesday evening's quarterly results call, he declared that Tesla is:

Hell-bent on becoming the best manufacturer on Earth.

Musk has never been one to downplay his company's potential. But the real bombshells on Wednesday had actually dropped before that, in the shareholders' letter. First, Tesla is moving its production target of 500,000 vehicles forward from 2020 to 2018. Second, this means that, contrary to what the company said on its fourth-quarter call in February, Tesla's going to need more money.

Investors should have known this was coming. As I wrote here a month ago, Tesla's Kickstarter-like down-payment program for the mass-market Model 3 was not only a useful source of interest-free funding. By holding out the promise of huge potential demand, it created a perfect opportunity to open the door to selling more new equity.

Tesla, like any new-ish business with global ambitions, has long relied on the good graces of the capital markets to bridge the gap between voracious up-front spending and future growth.

The Half-a-Billion a Quarter Habit
Tesla's cash burn accelerated again in the first quarter. The average for the past year has been $517 million per quarter
Source: the company
Note: Cash flow from operations less capital expenditure.

Before Wednesday's announcement, analysts were already forecasting full-year cash burn of about $820 million, according to figures compiled by Bloomberg. Factor in new capital expenditure guidance -- which Tesla is still "re-evaluating" -- and that widens to almost $1.6 billion.

Tesla's cash balance at the end of the first quarter was $1.4 billion. Throw in, say, $400 million from Model 3 deposits, and that leaves $200 million -- far short of the $1 billion Tesla's CFO in February called "a nice comfort level" for running the business. Tesla does have additional liquidity via its asset-backed credit line. Still, taking on more debt wouldn't help with this picture:

Racing Up
Tesla's net debt
Source: Bloomberg, the company

Before Wednesday's announcement, the stock had given up all its gains since the Model 3 was unveiled. Tesla's investors focused on the accelerated growth plans in the immediate aftermath, with the stock up 4 percent in after-hours trading. So it looks like getting willing buyers for new stock won't be a problem.

Buzz Fade
Source: Bloomberg

But like anyone making big promises, Tesla actually has to deliver. Wednesday evening's results and new guidance came at the end of a day when the company also confirmed its VPs of production and manufacturing would be leaving. The company insists this has nothing to do with snafus around the launch of the Model X SUV.

Yet Tesla, as with any auto manufacturer, faces a huge challenge in growing production by orders of magnitude. Musk made a point on Wednesday's call of saying that he keeps a sleeping bag near the company's production line -- which adds to the aura of relentless hard work, but also makes you wonder why the CEO has to sleep over on the factory floor.

Having missed original first-quarter guidance and now promising 17,000 deliveries in the current one, hitting Tesla's guidance for the full year is going to require a big jump in the second half.

Hang On To That Sleeping Bag
Tesla's vehicle delivery guidance suggests a big ramp-up after this quarter
Source: The company, Bloomberg Gadfly analysis
Note: Figure for 2Q2016 as per company guidance. Figures for 3Q and 4Q implied assuming full-year deliveries of 85,000.

That challenge is now set to accelerate to ludicrous speed after 2016. Tesla's success to date has been extraordinary -- as several hundred thousand people signing up for a vehicle they barely know and won't arrive for several years attests.

But the superlatives, and the attendant need for more capital, also speak to the increasing pressure on Tesla to deliver on the promise implied by its $30 billion market capitalization. Promising faster growth keeps the momentum going. Equally, it brings forward the moment of truth.

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:
Mark Gongloff at mgongloff1@bloomberg.net