Cash Cow Or Money Pit? Tesla Raising Another $1.5 Billion For Model 3 Production

For Tesla Fans -- those who gauge the company's success by its stock price: Go, Tesla! Go!

For all others: Financial Analysts have been successfully predicting that Tesla Motors will run out of cash (AKA "operating capital"), and will have to get money from Capital Markets (by selling shares) and other sources, just to stay alive, even when Musk was asserting this would be unnecessary. It turns out the Analysts were right, and Musk was wrong... every single time.

Financial Analysts have expressed grave concern over the fact that Tesla is "bleeding red ink" (financial-talk for "incurring substantial and consistent financial losses") and has no viable plan to profitability. They predicted Tesla would not be able to ramp up production, or continue to produce the Model 3 in meaningful numbers, without getting billions of dollars from external sources. We are now seeing this come to light with Tesla's proposed bond offering. It's just another way to get cash for Tesla to stay afloat, because selling cars doesn't do that.

Financial Analysts also doubt that Tesla can ramp up their Model 3 production anywhere close to the units and within the timeframes that Musk has proclaimed. This would be consistent with Tesla's history of consistently missing self-imposed deadlines, self-imposed sales forecasts, and self-imposed production ramp-ups.

If you look at the facts, then the say once again, just as they have in the past:

- Tesla loses money on each car it sells

- Tesla depends on getting money from government grants and "Believers" (people who believe Tesla stock is worth buying at the current price, and who pour their money into Tesla), just to stay alive

- This picture can continue only for as long as there are enough Believers to keep pouring their money into Tesla

Mind you, if you're a Tesla Fan, and you pay attention only to the stock price as a metric for their success, then none of this matters, because the stock is doing well. Praise Tesla. Halleluyah!

I'm also hearing rumblings that a stock market crash and a subsequent recession is a very real possibility in the not-too-distant future. Although I would not make a bet on how realistic this is, can you imagine what would happen to Tesla Motors if it did?

Picture a huge stock drop across the board, including TSLA. Picture investors getting skittish, and becoming much less likely to buy anything other than Blue Chips, or just choosing to sit tight for a while. Suddenly, Tesla's Believers' purses would snap shut. Without a river of external cash pouring into Tesla, it would contract violently, and then likely shutter for lack of self-generated operating capital. Ouch! Some Chinese conglomerate might scoop up the assets for just a few Renminbi on the dollar, and Tesla Fans would still smugly proclaim that Tesla never faltered, and is still doing well.

We're in interesting times, for sure! I'm curious how this will all play out.

@TheSteve, you really have to stop getting your "truth" from Rachel Maddow. He never reports facts.

Matt, you're getting defensive due to your mistaken belief that I'm implying your beloved president is responsible for said **POSSIBLE** economic hardship, should it actually happen. I did not say that, imply that, nor do even I believe that.

The indicators that suggest an economic reset *MIGHT* occur, are unrelated to the current US President.

Mind you, those who have blind faith in the current administration might feel insulted that someone even dare to suggest that such a thing **MIGHT** be possible, "on my watch." Such people would believe that only rainbows and unlimited prosperity are forecast for the duration of the term, and their coming is a certainty. Such is the nature of faith, and hurt feelings.

@TheSteve: why go though all these complicated scenarios ? Armageddon could happen at 3AM tonight when Trump gets an itchy finger and wants to give Lil' Kim a lesson in how to play with nuclear weapon.

Money pit from hell.

So, Tesla had to raise some money in a hurry, but why junk bonds?

Tesla announced today the offering of the $1.5 billion in senior, unsecured notes. These are NOT convertible to stock and are expected to offer a relatively high interest rate (VERY COSTLY).

Tesla could have offered $1.5 billion in stock with relatively little dilution and been free of debt servicing costs. The WSJ observes that Tesla's share price is its “greatest asset at the moment” and a new issuance would have increased outstanding shares by only 3%.

Tesla already has more than $7 billion in long-term debt, not including the accounts payable and accrued liabilities sum of $3.87 billion.

A year ago, interest expense cost Tesla $46 million in the June quarter. This time around, it was $108 million. That's a WHOLE LOT of money when a company is struggling with operating losses of a few hundred million dollars.

While debt is considered “cheaper” than equity, it is likely that what motivated resorting to junk bonds was the fear that Musk might lose control of the company with further share dilution.

This conveys that a siege mentality may be setting in at Tesla completely at odds with the confident posturing of its CEO.

Interesting tidbit the WSJ article also mentioned at the current burn rate Tesla has 3 quarters of cash left. This bond issue only raises a little more than a quarters worth of cash. That says the Model 3 must generate a lot of cash well within a year to keep things going.

Tick...Tock...
Tick...Tock...

I am a Tesla fan, but when I heard this news I knew is was not good. It makes me wonder if they really do have $3B in cash reserves, or if it is already burnt pending the pmt of the firm's accounts receivable over the next 2 quarters. Time will tell.

Comparing the debts/liabilities for Ford, GM and Tesla - numbers in the same order (as of Jun-30-2017):

Long Term Debts: $95B, $59B, $7.1B
Total Liability: $215B, $194B, $19.5B
Total Liablitily/Total Assets: 86.9%, 81%, 74.7%

Outlook (estimates):
2017 Revenue: $142B, $148B, $11.8B
2017 Y/Y Growth: +0.7%, -11.2%, +67.9%
2018 Revenue: $143B, $140B, $20.2B
2018 Y/Y Growth: +0.3%, -5.1%, +72.2%

From the numbers above, it's clear Tesla is in better shape than both Ford and GM, especially revenue growth for 2017 and beyond. Their corresponding market caps reflect that - and the trend continues.

Speaking of loans, in 2006 Ford took out over $23B loans to restructure and prepare for the inevitable downturn a few years later. It also took $5.9B DOE loans in 2009 that it hasn't paid back. With all the profits and record sales years since the recovery, Ford's total long term debts grew to a whopping $95B.

GM has not done any better - it has amassed $59B long term debts since its resurrection less than 7 years ago. GM also walked away from $12B tax payers dollars with its bankruptcy, plus billions of dollars lost by share holders of the old GM. I must applaud GM for this move - Bernie Madoff is an amateur compared to these GM suits.

Tesla is in the cross-hair for their risky moves with the new loan and recent equity offerings, but look at the big picture: they have a solid strategy (Gigafactory, supercharge network, technology) and a huge world-wide interest in the Model 3. What they need is manufacturing capacity to meet the demand and push the products into the consumer's hands fast - money is the necessary evil to make it happen.

As the saying goes - it takes money to make money. If recent stock price is any indication, I'd say the investing community welcomes these moves. The only pain I see is in "shortville".

Attention all lame brain progressive liberal ideologues. Tesla is giving you another opportunity to throw more of your capitalist earned money into the Tesla money pit.

WSJ article on 8/10/17 reports Musk got a less than enthusiastic reception at the first bond presentation. Seems that bond folks are more analytical about Tesla's future. Worried about ability to be paid back, especially as the bonds are unsecured by assets and in a bankruptcy are subordinate to the debt held by Musk and company, which means in a bankruptcy they would get nothing.