Tesla Motors
A Tesla Model 3 out on the road, in a staged shot from Tesla.

Tesla Averts Cash Crunch as Musk Mystique Offsets Late Cars

Feb. 8, 2018
The company’s cash balance barely budged last quarter, but Musk remains confident: “If we can send a Roadster to the asteroid belt, we can probably solve Model 3 production.”

Tesla Inc. put to rest a chorus of concern that it was going to need to raise more money soon, thanks in part to the salesmanship of its CEO.

The company’s cash balance barely budged last quarter even as it struggled mightily to make Model 3 sedans. Paying customers are supporting Tesla through its production struggle — they’ve put down more than $850 million in deposits for vehicles including the Semi truck and Roadster sports car thatMusk showed off in November.

Manufacturing setbacks had been limiting the amount of money coming in from customers taking delivery of Model 3s, the linchpin in Musk’s master plan to bring electric cars to the masses. While it’s going to take longer to potentially realize that vision, the CEO of both Tesla and Space Exploration Technologies Corp. has succeeded in captivating consumers in the meantime. His latest promotional stunt involved firing off a sports car into the sky atop the world’s most powerful rocket.

“If we can send a Roadster to the asteroid belt, we can probably solve Model 3 production,” Musk said on a conference call with analysts Wednesday, shortly after tweeting another photo of his Roadster hurtling through space.

Tesla said it remains on track to meet its goal to build 5,000 Model 3 sedans a week by the end of June, a target Musk has delayed several times. The company is putting off spending to double its production rate until reaching that milestone.

That approach paid dividends for a closely watched figure indicating how much money Tesla is using up: negative free cash flow. This was just $277 million in the fourth quarter — the lowest in more than a year — after two straight quarters of more than $1 billion.

Easing Concerns

“All the cash concerns will be alleviated once they get these cars on the road,” said Tasha Keeney, an analyst at ARK Investment Management, which holds Tesla stock.

Tesla shares slipped 0.4% to $343.70 as of 8:14 a.m. Thursday in New York. The stock is up 11% this year after surging 46% in 2017.

Tesla is still far from being in the clear with regards to cash. The company finished the fourth quarter with about $3.4 billion, and it’s planning slightly more than $3.4 billion in capital expenditures this year after spending that much in 2017.

Model Y

Some of the expenditures planned for this year are linked to what’s coming next to Tesla’s lineup. In addition to the Semi going into production in 2019 and the Roadster coming in 2020, Tesla plans to add a crossover called the Model Y.

Tesla will announce the location for where it’ll build that in three to six months, with capital spending toward the vehicle starting later this year.

“I don’t want to jump the gun on those but I think we’ve got a good plan,’ Musk said. “It’s really taking a lot of lessons learned from Model 3 and saying how do we design something to be easy to manufacture instead of hell to manufacture.”

Sales Shakeup

Tesla expects to deliver about 100,000 Model S sedans and Model X sport utility vehicles, in line with last year’s 101,312.

The department tasked with pulling that off will now be reporting directly to the CEO after Lyft Inc. hired away Jon McNeill, who had been president of global sales and service at Tesla and an influential figure at the company.

“2018 will be a transformative year for Tesla,” Musk wrote in a letter to shareholders. “This is the year when we believe we can achieve true cost parity” with internal combustion engine vehicle production, “something that many believe is not yet possible.”

By Dana Hull, with assistance from John Lippert.

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Licensed content from Bloomberg, copyright 2016.

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