Tesla (NASDAQ:TSLA) Needs $1-B+ in Cash in the Next 6 Months

Tesla (NASDAQ:TSLA) Needs $1-B+ in Cash in the Next 6 Months


  • Wall Street is asking: “where it it going to come from?”

By the end of Y 2018 Tesla needs to come up with about $1-B to give to creditors, it does not have it.

So, forget the libel lawsuits and the Twitter wars, the SEC investigations and tearful interviews from CEO Elon Musk.

Forget the race to 5,000 M-3s and the “production Hell” turned “delivery Hell” and all the hours of rework.

And try to forget all the drama with hip-hop star Azealia Banks and the goth antics of girlfriend Grimes.

Remember instead that Tesla is a profitless public company with $11-B in long-term debt, trying to scale and survive in a capital-intensive industry where margins are very thin.

And then you will understand that Tesla’s controversial CEO Elon Musk has yet another enemy to add to his list along with the short sellers and doubters: that enemy is the math.

The signs of Tesla’s cash crunch are in the math, and there for anyone who looks to find them.

The company is trying to renegotiate more favorable payment schedules and/or rebates with its suppliers and vendors.

Recall, August, 18 of 22 respondents in a survey of auto parts suppliers said Tesla was a danger to their companies. At least 1 supplier has gone broke waiting for Tesla to pay its bill. There are over a 12 mechanics liens filed against Tesla in Alameda County, home of the company’s Fremont, California factory too.

These are signs that Tesla is trying to stretch out the cash that it does have.

As of 30 June, the company’s total current liabilities of $9.1% devour its $6.7-B in assets. That means it is $2.4-B in the hole when it comes to working capital.

But, on Wall Street negative numbers do not necessarily mean a company is finished when it has a $50-B market cap and a charismatic CEO. As of  30 June, Tesla was still holding around $2.4-B in cash, $942-M of which are customer deposits for the M-3. That leaves the company with $1.4-B excluding deposits that are all subject to customer cancellation call backs.

Tesla  has expenses coming due.

In November the company needs to pay out $230-M for a convertible bond payment. And by the end of the year, it needs to have an additional $920-M in the bank to pay a loan due in March. It also has a $157-M non-recourse loan due in December.

Add that all together and we  have a very ugly scenario playing out on Tesla’s balance sheet, and in that scenario Tesla’s $1.4-B in cash shrinks down to just over $60-B in cash, the M-3 deposits aside.

Tesla did not respond to a request for comment about these numbers.

In finance, there is something called the quick ratio or the acid-test ratio. It is a company’s current assets divided by its liabilities. In the scenario I just explained, Tesla’s acid-test ratio ends up at 0.20.

Note: in Y 2008, right before it went bankrupt, GM’s acid-test ratio 0.30.

© Moody’s

This is why in March, just after downgrading Tesla’s credit rating, Moody’s said the company would have to raise capital to continue operations and pay off debt. Moody’s estimated Tesla would burn $2-B in cash through the year and remain cash flow negative through all of Y 2019.

So, Moody’s was saying the M-3 ramp up would not provide anything like the sort of cash Tesla needs going into Y 2019.

In fact, by Tesla’s own estimates, it may not even make the company profitable.

Mr. Musk said on Tesla’s Q-2 conference call that it would be profitable the following Quarter by making 7,000 cars a week.

At the same time, he guided to 50,000- 55,000 M3s manufactured in Q-3, a goal the company met by delivering 55,840 M-3 cars and producing 53,239 of them. That is just over 4,000 cars a week, and not enough for Mr. Musk’s promise of profitability.

That said, despite Moody’s dire predictions and Tesla’s disconnect between projections and profitability, CEO Musk has said repeatedly through the year that he will not raise money.

The Big Q: Where is this cash coming from?

Commentary: This Unicorn looks like it is mortally wounded.

HeffX-LTN Analysis for TSLA: Overall Short Intermediate Long
Bearish (-0.36) Bearish (-0.38) Neutral (-0.23) Bearish (-0.47)

Stay tuned…

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