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 The Silicon Valley automaker is losing more than $4,000 on every
Model S electric sedan it sells, using its reckoning of operating
losses, and it burned $359 million in cash last quarter in a bull
market for luxury vehicles. The company on Wednesday cut its
production targets for this year and next. Chief Executive Elon Musk
said he's considering options to raise more capital, and didn't rule
out selling more stock.
Musk has taken investors on a thrill ride since taking Tesla public
in 2010. Now he's given himself a deadline, promising that by the
first quarter of 2016 Tesla will be making enough money to fund a
jump from making one expensive, low volume car to mass producing
multiple models, and expanding a venture to manufacture electric
power storage systems.
Tesla's shares fell almost 9 percent on Thursday and slipped another
2 percent on Friday as investors and analysts weighed the risks of
Musk's ambitious plans for expanding Tesla's auto and energy storage
businesses. Tesla had just $1.15 billion on hand as of June 30, down
from $2.67 billion a year earlier.
Automakers consume cash to pay for assembly line equipment,
including metal dies and plastic molds, as well as testing to meet
safety and emissions standards. A typical new car can cost $1
billion or more to engineer and bring to market.
Established automakers such as General Motors Co and Ford Motor Co
have amassed far larger cash cushions as they've rebuilt balance
sheets battered by the 2008-2009 recession. GM, restructured six
years ago in a government funded bankruptcy, has targeted cash
reserves of $20 billion and had more than $28 billion in cash
equivalents as of June 30.
To be sure, GM sells more than 9 million vehicles a year, while
Tesla plans to build between 50,000 and 55,000 cars this year.
Tesla, most of whose cars are built to order directly, delivered
11,532 cars in the second period and said it had an operating loss
of about $47 million, for an operating loss per car of about $4,000.
Tesla's narrower margin for error is just one more way in which it
is different from its century old rivals.
The company said it plans $1.5 billion in capital spending this
year, mainly to launch its Model X, battery powered sport utility
vehicle with eye-catching, vertical-opening "falcon wing" doors.
Tesla reported $831 million in capital spending during the first
half of the year, indicating it will spend roughly another $700
million.
During the second quarter, Tesla said operating costs and research
and development spending rose, while average selling prices for the
Model S lineup, which starts at $70,000 before federal and state
electric vehicle tax breaks, fell 1 percent as the mix of sales
shifted to less expensive models and a strong dollar hit revenue
generated overseas. The Model S comes in several different versions,
ranging in price up to $106,000 or more, depending on options.
CAPITAL SPENDING
Tesla has signaled capital spending will drop next year because the
company won't be spending on a major vehicle launch. In 2017, Tesla
plans to launch its Model 3 line, which the company says will start
at about $35,000 and push total sales toward the goal of 500,000
vehicles a year by 2020.
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Barclays analyst Brian Johnson disagreed with the company's
estimates, and said he expects Tesla's capital spending will go up
in 2016 and 2017 as the company ramps up its battery factory and
Model 3 development. "Their small scale means the cash generation is
not as great as they might have hoped for," he said.
Musk said this week Tesla expects to have $1 billion in cash over
the next year, and told analysts "there may be some value" in
raising capital "as a risk reduction measure."
Tesla's stock is still about 70 percent higher than it was two years
ago, and 8 percent ahead of its level on Jan 1. With a market
capitalization of $31 billion, Tesla is worth more than Fiat
Chrysler Automobiles NV, the much larger maker of Ram pickups and
Jeep Grand Cherokees.
"A capital raise, given the way they're burning cash today, given
the fact that they have future investment needs, seems very likely
at some point," said UBS Securities analyst Colin Langan, who has a
sell rating on the stock.
Musk has steered Tesla out of tight corners before. In September
2012, the company faced a cash crunch, but raised money by selling
shares and renegotiating the terms of a federal loan. The Model S
started production in miod-2012.
Tesla has made moves to expand sales volume, and lure people to pay
more for its vehicles. In addition to adding a lower priced version
of the Model S, Tesla last month said it would offer performance
upgrades for its Model S 85 and 85D for $5,000 and launched the
Model S 90D and P90D high performance cars at a $10,000 price
premium.
Tesla reports its finances in a different way from the Detroit
automakers. Using the generally accepted accounting principles, or
GAAP, used by GM or Ford, Tesla's operating losses per vehicle have
steadily widened to $14,758 from $3,794 in the second quarter of
2014.
But Tesla points out in its statements to investors that its GAAP
accounting excludes certain revenue and profits from Model S sedans
that customers lease. In the second quarter, the deferred gross
profits from Model S leases amounted to $61.9 million, Tesla said.
Analysts say they add back the deferred revenue to make Tesla's
figures more comparable to the reporting used by other automakers.
(Reporting By Paul Lienert and Joseph White. Editing by Joseph White
and John Pickering)
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