Tesla Motors Inc will continue to burn big amounts of cash in its quest to become a major car maker. In a recent note Barclays said the Wall Street may be underestimating the future spending of the car maker. In future, according to the British investment bank, Tesla Motors may not be able to slow its cash drain.
Tesla Motors not very efficient with cash
When it comes to spending, Tesla Motors Inc is known to be not very efficient, and it will continue to be a capital-intensive firm, thanks to its business targets, the analysts said. Over the next five years, analysts expect $11bn in capital spending from the firm, which has been losing money on a consistent basis.
Tesla Motors’ software prowess such as its over-the-air technology updates and its driverless features are its strength, the analysts said, noting that it has been a challenge for the firm to hit the “more mundane, yet crucial,” task of making cars efficiently.
“We are concerned that the capital intensity of the core automotive business may further overshadow Tesla’s competitive edge in software,” the analysts said. If the firm is unable to efficiently make its mass-market Model 3, then there are risks that it may run out of money to invest on the software side, the offerings that make Tesla Motors “truly differentiated,” the analysts said.
Cash burn outweighs “bigger mission”
Even Tesla Motors Inc long-time bullish, Morgan Stanley recently noted that the firm would spend almost $1bn in the 12 months ahead, but believes the cash burn is outweighed by its “bigger mission.” The analysts note that Tesla Motors is an ideal example of a car firm launched from “from the ground up.”
But this involves big cost, especially in the initial stages. In addition, the Gigafactory is putting additional burden on the firm. During the recent earnings call, CEO Elon Musk said the firm is targeting to be cash flow positive, but the CEO made no promise about when that will happen.
Barclay’s analysts maintained Sell rating on the firm with a price target of $180. Morgan Stanley analysts maintained Overweight rating on the EV firm with a price target of $450. The majority of analysts have a Hold rating on the stock with a consensus price target of $277.88.
In the past three months, the stock is down 13% versus a loss of 2.4% for the S&P500. Year to date, the stock is down 6% compared to a decline 1.3%. On Friday, Tesla shares closed down 2.70% at $207.19.