Tesla Inc. had some good news to report during its quarterly shareholder call on Tuesday, but it may not be enough to salvage the electric carmaker's stock prices and needed cash flow.
CEO Elon Musk assured shareholders and analysts that Tesla won't need to raise more capital this year, and that production output of the Model 3 sedans increased to 2,020 units built during the last seven days of March. That helped drive the automaker's share prices up after seeing a huge plunge this year.
Tesla also released production numbers for the first quarter of the year on Tuesday. The new Model 3 saw 8,180 vehicles delivered during the first three months of 2018, beating out Toyota's Prius Prime with 6,468 deliveries and the Chevrolet Bolt with its 4,375 units delivered.
But is it enough?
Tesla's challenges are much larger than the temporary reprieve in its share price. The company's $10 billion debt load is a much more pressing issue, with cash dwindling and its bonds continuing to slide after the company's credit rating was cut.
Musk's April Fools' Day tweet, that Tesla Inc. "has gone completely and totally bankrupt" drew a few laughs, but concern over the company's future by Wall Street is still pressing.
His claim that he's been sleeping at the Fremont, Calif., factory to make sure Model 3 production goes smoothly, but may not restore confidence, either. Related: Renewables Are Closing In On Fossil Fuels
Tesla has about $1.2 billion in debt maturing over the next year, and analysts expect the company will burn through $2 billion of its cash this year. The stakes are very high as the company aims to raise production from the 2,020 Model 3s built during the last week of March up to about 5,000 units a month in about three months. Tesla promised to hit that target during the quarterly financial call, and expects a better cash flow.
"It's pretty likely they're going to have to go to the capital markets in the not-too-distant future," said Bruce Clark, a credit analyst at Moody's Investors Service. After missing previous Model 3 production targets, Clark sees raising the needed capital to be a tough call.
"Their credibility has taken some hits," he said.
The company sees that by Q3, it will reach its long-sought ideal combination of achieving high volume, a healthy gross margin, and strong positive operating cash flow.
"As a result, Tesla does not require an equity or debt raise this year, apart from standard credit lines," the company said in its Q1 statement.
During the earnings call, Musk said that robots at its Gigafactory in Nevada had caused most of the production breakdowns. That will be resolved by a new production line being built at the company's recently acquired Grohmann Automation labs in Germany. It was scheduled to be installed at the plant last month.
The battery factory may be part of the problem, but the Fremont plant is important enough to get Musk to camp out there and make sure the Model 3 gets up to speed. And it hasn't been enough to get the company out of the "production hell" Musk described months ago, according to his recent tweets.
Musk is also feeling the squeeze coming from the United Auto Workers attempting to unionize the Fremont plant - and from a second fatal crash related to Tesla's Autopilot system.
On March 23, Tesla Model X driver Walter Huang died on U.S. 101 in California when his electric SUV slammed into a highway barrier.
In a blog post Friday, the automaker attributed the severity of the crash to a missing barrier that's usually in place to absorb impact during collisions. The company also said the Model X was operating in the semiautonomous "Autopilot" mode, but that Huang had not followed guidelines intended to make sure drivers are fully attentive while the vehicle is in Autopilot. Related: Bahrain Says Giant Discovery Holds 80 Billion Barrels Of Oil
The National Transportation Safety Board on Sunday said it was "unhappy" that Tesla had released information about the crash. The federal agency is also studying reports from Huang's family members that he had complained about the performance of Autopilot on the same stretch of highway.
NTSB said that it expects to issue a preliminary report on its findings in a few weeks.
Musk is under great pressure to pull the automaker through this crisis, along with ramping up profitable Model 3 production. While Musk has been able to charm investors and shareholders in the past, the stakes have gone up quite a bit.
A few months ago, the company raised funds through unsecured bonds. They're now trading a record lows, which hurts future bond sales.
Finding capital raising alternatives is getting slimmer, including exploring debt that can be covered over to stock. Tesla has issued that type of stock several times before, but the equity's volatility makes this alternative much more attractive to a buyer than to Tesla.
Musk's famous quote about Tesla experiencing "production hell" won't be over anytime soon.
By Jon LeSage for Oilprice.com
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Jon LeSage is a California-based journalist covering clean vehicles, alternative energy, and economic and regulatory trends shaping the automotive, transportation, and mobility sectors. More
Comments
How does production increase at Tesla compare to other electric vehicle production timeframes?
Is Tesla slower at ramping up production compared to GM for example or has it in fact achieved higher targets even if it has missed its own goals?
They are clearly working on an experimental production line, how well would traditional car makers manage such a change considering that they haven’t innovated in this department for quite a while?
How much money does Tesla spend on its aggressive expansion and what would it mean for profitability if they scaled this back to compensate for losses?
SpaceX seems to be more financially successful than Tesla and some have suggested that Elon Musk should not be managing the company in a similar way that he is not directly managing SpaceX. However, Tesla is not SpaceX. At every corner they face resistance and while rocket science is hard the companies in that industry are not commercially competitive in any real way. If cars were done the same way as rockets then their average cost would be an order of magnitude higher than it is today. As far as I’m aware, no startup has managed to push into this field with electric vehicles and survive because most of the infrastructure is agains them. There’s only Tesla. We can quote how much money Tesla is losing all day long and mention GM as a model car company but the fact is that not too long ago that model company as well as other major car manufacturers cost taxpayers billions of dollars in bailout funds because they couldn’t even make it work with ‘cheap’ ICEs and low regulations. Now they are attempting to push through damaging fuel consumption strategies by lobbying the EPA (or is it the IPA now - Industry Protection Agency) which could put them in the same situation that they had prior to the financial crisis. I don’t think anyone should reward them for these actions and we should instead look to give alternatives such as Tesla the benefit of the doubt for as long as possible. Either way, the high fuel consumption strategy will most likely bite GM and others in the rear since it could make American vehicles uncompetitive both at home and abroad in the future.
@David - GM took 9 months to produce 1,000 Bolts, during same time, Tesla produced 10,000 Tesla Model 3 cars.