Trouble for Tesla

The Herald reports:

Shares in the electric car company slumped 5.5 per cent Thursday, a day after it reported its first-quarter results and Musk’s remarks during an analyst conference call that left many investors scratching their heads.

Musk basically told analysts off for asking hard questions, and then spent 25 minutes taking a patsy from a fan boy. That suggests there are real problems, when the CEO can’t even handle some analyst questions.

He also defamed the analysts by saying they were only asking their questions to justify their sell positions. But in fact the two analysts had a position of hold or buy.

Tesla went through nearly US$400 million during the first three months of the year to make its cars, pay its sales staff and cover the other costs of running its business.

Another US$656m went to spending on equipment, facilities and other capital projects, for a total of slightly more than US$1 billion.

Analysts call this situation “negative free cash flow,” and it helped cut Tesla’s cash balance to US$2.7b at the end of March. If the company keeps burning through its cash at the same pace, it could run out within a year and be forced to sell more of its stock or borrow money.

Burning cash can be fine so long as you will eventually be profitable. Xero is a good example of that. But can Tesla really make its cars at the price they have contracted them for, and on schedule?

Tesla expects it will become profitable later this year. But that hinges on a big “if.” To do so, Tesla has to ramp up production of its Model 3 electric car to 5,000 units a week. The company says it may reach that level in about two months. Just prior to a planned shutdown in mid-April, Tesla was producing Model 3s at a rate of more than 2,000 a week.

Increasing production by 150% is no easy feat. Many companies can only increase production by 10% or 20% in a short time-frame.