Tesla Motors Inc (NASDAQ:TSLA) isn’t going to make a profit until 2020, at least according to the proclamations of Elon Musk the company’s well-worshiped CEO.The company is going to need cash in order to keep going, and with big changes in the EV market on the way, it’s going to need cash quick.
Expect the company to go after capital in one way or another this year, with an announcement possible alongside the company’s first quarter earnings report.
Here’s why Tesla Motors needs cash
Before long the company is going to be facing serious competition in all electric markets. General Motors is aiming for the mass-market, while BMW is going to take Tesla on at home in the luxury sedan business. All other carmakers have much deeper pockets than Tesla Motors, and that cushion will be enough to get the majority of them over whatever transition is to come in the auto market.
Tesla Motors isn’t in the same situation. It’s burning cash, and it’s going to keep doing so. Elon Musk’s company got rid of $1 billion in 2014, but got through the year on the back of an additional $2.1 billion in financing it secured. This year will probably look similar, though the launch of the Model X may weigh more heavily
Morgan Stanley changes opinion
Tesla Motors biggest fan among the investment banks is likely Morgan Stanley. Adam Jonas, the MS chief analyst covering the Palo Alto California firm, wrote recently that Tesla stock could increase tenfold. More recently, however, he’s gotten a little less exuberant, reflecting the shifting opinion around Tesla.
According to Jonas Tesla will , and the company will show losses of 77 cents per share for the first quarter. Expenses are high and Tesla is squeezed.
Meanwhile Ryan Brinkman at JPMorgan says Tesla Motors will only ship 50 Model X SUVs in the third quarter. He has a price target of just $165 on the company. Other analysts are less optimistic.
Looking to the future
Over at Seeking Alpha today Stanphyl Capital Management LLC has some interesting thoughts about the future of Tesla Motors. According to Mark B. Spiegel, the firm’s managing partner, Tesla should concentrate on the very high end of the spectrum, ensuring positive cashflow and a luxury brand name.
Spiegel doesn’t seriously believe that Elon Musk is willing to do that, however, leaving Tesla Motors future a mite more predictable. Tesla Motors is currently $3 billion in debt, and it will go bankrupt trying to fight companies like Mercedes, BMW, Ford and General Motors, according to the analyst. He closes his piece by stating that he’s looking to cover his Tesla Motors short in about five years, when the company goes bankrupt.
Tesla Motors bottom line
Spiegel’s analysis is a little too deterministic for most, but it hits at the heart of the problems Tesla Motors is facing. The company is going to need to take on financing in order to keep itself alive, and it’s going to need to take on more and more in order to do battle with companies like General Motors.
Tesla Motors had $1.9 billion in cash at the end of 2014. When the company’s earnings report for the first quarter arrives, expected on May 5, the cash reserves will be one of the most important numbers contained therein. Tesla will not be able to launch the Model X and keep its cash reserves at anything like current levels. That should be clear.
Tesla Motors will sell bonds this year, or it will tap the market for an additional round of equity financing. There’s few options that will allow the company to escape the simple tyranny of the cash flow statement.