Tesla's First Billion Is The Hardest
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:
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:
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):
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.
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Mark Gongloff at firstname.lastname@example.org