Tesla, Inc. (NASDAQ:TSLA) will eventual need to raise more money, but not until next year. Even though the young car maker burns through cash like few other companies, a bid for more cash should only come in the latter half of 2018. This is the verdict of leading analyst firm Goldman, Sachs & Co.
For now, Analyst David Tamberrino of Goldman claims that Elon Musk’s car business is in the clear. His assurances extend to both Tesla’s financial position and rivalries. But things never stay this peachy for too long, and Tesla can brace itself for more competition in a year’s time.
This month was a victorious period for the makers of the Model 3. Tesla sold $1.8 billion in bond notes. That also happened to be $300 million more than the company hoped to sell, proof of the support behind Musk’s ambitions. In light of this, Tamberrino is sure Tesla, Inc. will have “a healthy cash balance” for the next 12 months or so.
Tesla bumps up cash flow
The analyst had initially expected Tesla to punt for more money sometime during the first three months of 2018. Bearing a mildly improved situation, however, Tamberrino expects that to happen in next year’s third quarter. That is when the electric car market will be a little more competition heavy. Tesla, despite its lead over the market, will need to advance itself to retain its edge.
Tesla is sure about many things right now. The production of its new Model 3 sedan is on the rise, margin goals will be met, and expenses should dwindle. The firm also believes that all of this will contribute to positive free cash flow in 2018.
The $1.8 billion in funds raised should last until late 2018, Tamberrino asserts. His estimates see Tesla forking out $1.4 billion in 2017 cash flow operations. However, $320 million in positive cash should come from operations next year.
The Elon Musk company has an overwhelming position in the EV market. The company’s flagship Model S sedan and Model X SUV represent 45 percent of total electric car sales for the first half of this year. This is according to research by Moody’s Investors Service.
GM and Nissan have growing stakes in the market, too. The first half of 2017 saw their EV offerings respectively account 16 and 15 percent of EV sales. One company accounts for nearly half of all EV sales while its two closest rivals account for 30 percent collectively. That’s a staggering edge, but headwinds are coming.
Tesla rivals are crawling out of the woodwork. Last week saw the entire German auto market vow to outdo Elon Musk at his own game. BMW AG will unveil a sedan variant of its i3 next month. It will be seen first at the annual Frankfurt Motor Show. That of course means a more competition for Tesla, which has to fend of the rise of trusted car brand in the EV space.
There is also Volvo to consider; trusted and formidable. The car maker has sworn to rid its production of pure gas guzzlers in 2019.
Tesla, Inc. benefits run dry
In the U.S., a near $8,000 tax discount is offered to electric car buyers. Those start lessening in value and eventually run out once a company sells 200,000 EVs. The third quarter of next year is when Tesla is expected to realistically hit 200,000 Model 3 deliveries. That is according to Tamberrino, who considers the Model 3’s reception.
This would mean that 2019’s initial quarter will see the affordable Tesla run out of tax incentives with which to rake in buyers. After all, considering that the initial tax credit accounts for more that 20 percent of the car’s base price, it has to mean a lot to the near 500,000 people currently in line for the car.
Take away the discounts and Teslas effectively grow more expensive. Add the rise in competitors within the affordable and premium EV market, all set on undercutting Tesla car values, and things no longer seem so peachy for Musk’s command over the market.
However, there is a bright side and Musk isn’t at all fazed. The Tesla, Inc. CEO says that his company’s suppliers now offer long payment terms. That is due to the increased confidence in production ramps and the promise of Model 3 sales. This month, the CEO told investors that Tesla will soon be able to collect cash from customers before it need to pay its suppliers. So, the company is edging toward thea clear.
The electric car is the inevitable future of the auto industry. In that regard, Tesla has a massive head start with the next generation of driving. But competition is sure to speed up, too. Tesla, Inc. (NASDAQ:TSLA) looks poised to overcome that obstacle and step into profitability.