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Tesla Motors Inc (NASDAQ:TSLA) Cash Fire Burns Shares on 2016 Forecast

Elon Musk Tesla Motors Inc (TSLA) and SolarCity Corp (SCTY)

Tesla Motors Inc is losing $4,000 on every Model S it sold, claims a report from Reuters. The number is based on the operating loss figure from the firm. In addition to the loss, the firm burned $359m cash in the quarter.

Elon Musk Tesla Motors Inc earnings

Will Tesla raise more cash?

Last week, Tesla Motors   CEO Elon Musk lowered the production target for the year and for the next, and also hinted of plans to raise more cash including selling more stock.

Musk promised that by 2016, the firm will be making enough money to fund all its cars including the expensive Model X and Model S, and the mass-market Model 3, along with its new power storage systems.

Last week, Musk said that by next year, the firm will have around $1bn in cash, and expect “some value” in raising capital “as a risk reduction measure.”

In a note to the clients, UBS Securities analyst Colin Langan also agree that a capital raise seems “very likely at some point” noting the rate at which the firm is burning the cash and its future needs.

More expenditure ahead

Tesla Motors plans to spend $1.5bn this year primarily for the launch of its Model X. For the first half of the year, the EV firm spent $831m, suggesting that for the other half it will be making a capital investment of another $700m. The EV firm expect the capital spending to drop next year as there is no product launch in 2016. But in 2017, Tesla will be coming out with its Model 3, which is set to cost around $35,000.

However, Barclays analyst Brian Johnson does not agree with the Tesla Motors estimates. He reckons capital spending will rise in 2016 and 2017 as the firm will spend to ramp its battery product and Model 3.“Their small scale means the cash generation is not as great as they might have hoped for,” the analyst said.

Automakers need cash for the assembly line equipment including the metal dies and plastic molds, and for the meeting the emissions and safety standards. Bringing a new car to the market usually cost around $1bn, according to Reuters.

Veteran players such as GM and Ford are now used to keeping big cash cushions as they faced the 2008-2009 recession. GM, which has gone through government funded bankruptcy, has been aiming $20b in cash reserves, and presently has around $28b in cash, says Reuters.

On Friday, Tesla shares closed down 1.47% at $242.51, and year to date the stock is up almost 10%.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.