Cash Burning Tesla Motors Needs $12.5bn – Musk Delays the Inevitable: Analyst

Tesla Model 3 (TSLA)

In the next two years, Tesla Motors Inc is going to need a lot of money. Analyst Colin Rusch of Oppenheimer. Rusch – in a note – said that SolarCity’s impending merger will require cash in four key areas. This merger will be up for a shareholder vote in November. Rusch believes that by the end of 2018, Tesla would need $12.5bn.

Tesla needs a lot of money

Breaking down the amount, the analyst said the EV firm will need $5bn to $8bn in capital expenditures to combine its stationary power business with SolarCity, and another $2bn in capital for the auto unit. Also, it would need cash for working capital and operating lease obligations.

Tesla Motors Inc (TSLA) Factory Freemont, California

Rusch has been bullish on the solar energy and cleantech in the past and on Tesla’s auto business as well, but the combination of the two companies has him concerned, notes CNBC. “We believe investors will be concerned with visibility into the business.” Also, the way the merged company reports the performance of its units will play a crucial role in convincing investors, the analyst notes.

Rusch cited lack of disclosure as one of the reasons for his neutral rating on the stock. However, the analyst does believe that Tesla has potential to be a ‘transformative technology company’ that could deliver ‘outsized returns for investors.’

Over the past several years Tesla Motors Inc has held multiple equity offerings. And earlier in 2016, it warned that it might need to make other offering this year. However, CEO Elon Musk – in a tweet on Sunday – said there won’t be any need to raise more cash through Q1 of 2017. Rusch, however, believes that raising money sooner would be in the best interest of the company.

Does Musk really have money?

Tesla Motors Inc ‘s CEO has $1.3bn in credit lines that the EV maker can tap if needed to make sure the firm is able to run well for the next year, notes Bloomberg. However, analysts think that several projects are going on in the company right now, for which it would need a lot of money. These are building the mass-market Model 3, keeping SolarCity running and building the Gigafactory battery plant.

Ben Kallo – an analyst with Robert W. Baird – said, “Everyone kept asking when are they going to do a deal, when are they going to do a deal. Elon is saying, ‘We have other sources of capital.’ They can tap additional lines of credit.”

Musk might eventually need Wall Street’s help, but maybe he is just trying to delay it. As per Kallo, about $1.5bn would be needed by Tesla in the next eight months. Citing cash concerns over the merger, Goldman Sachs downgrade the automaker recently.

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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.


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