One *Billion* Dollars!

Tesla's First Billion Is The Hardest

Investors should expect to feel this burning sensation for a while.
Photographer: Justin Sullivan/Getty Images
At Closing, June 15th
358.17 USD

Well, Tesla finally delivered.

I don't mean the 30 Model 3 cars delivered at last weekend's handover party. I also don't mean second-quarter earnings that beat expectations in the sense that the loss was smaller than anticipated. Not only do earnings not really matter for Tesla Inc.'s investors, the beat can be attributed almost entirely to the company selling a slug of Zero Emission Vehicle credits.

I mean Tesla reported late on Wednesday its first quarter where it burned through more than $1 billion of cash:

Speeding Up

Tesla's cash-burn rate has accelerated this year and just went past $1 billion

Source: Bloomberg, the company

Note: Cash from operations less capital expenditure

Consequently, Tesla's cash on hand fell by roughly $1 billion in the second quarter and ended June at about $3 billion, meaning the company effectively burned through most of the money it raised in March via selling new equity and convertible debt.

Looking back, Tesla's advanced vehicles have defined its brand -- but its need for external funding is the defining story of its business model:

The Kindness Of Strangers

Persistent cash losses from operations and accelerating capex needs have left Tesla beholden to equity sales and lenders

Source: Bloomberg, the company

Add that all up and, in broad terms, Tesla has lost almost $1 billion in cash at the operating level since the start of 2012 and roughly another $6 billion has gone out the door in capital expenditure. Funding that has involved raising almost $10 billion from issuing equity and borrowing (the difference equates roughly to the cash Tesla held at the end of June):

The Well

Using cash at both the investing and operating level, Tesla has tapped shareholders and lenders for almost $10 billion, net, since the start of 2012

Source: Bloomberg, the company

Note: Simplified sources and uses of cash from 2012 through the first half of 2017.

Through the end of the year, Tesla expects to spend another $2 billion in capex but says the $3 billion on hand "plus expected cash generated from operations in the second half" will be sufficient, implying it won't need to tap investors again.

As history shows, positive cash from operations is a relative rarity for Tesla. It did manage it in the third quarter last year, but only by yanking various levers on working capital. While the company now expects sales of the existing Model S and Model X vehicles to be higher in the second half versus the first, it's a vague target and doesn't suggest much of an uptick after several quarters of flat deliveries (including a pretty disappointing second quarter on that front).

All of which makes what happens with the ramp-up of the Model 3 critical. CEO Elon Musk says he expects at least six months of "production hell" on this front. That burning sensation may persist for a while yet.

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

    To contact the author of this story:
    Liam Denning in New York at

    To contact the editor responsible for this story:
    Mark Gongloff at

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