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What is the current financial situation of Tesla Motors (liquidity, debt, activity, etc.)?
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All the information was obtained from teslarati.com and businessinsider.com
Tesla’s second-quarter earnings for 2018 saw the California-based carmaker beat Wall Street revenue estimates after posting $4B billion in revenue and missed earnings estimates with a non-GAAP loss of $520 million.
The results, which were posted in an update letter to investors after the closing bell on Wednesday, August 1st, showed second-quarter earnings of -$3.06 per share, slightly worse analyst estimates of -$2.92 per share. Compared to the previous year, revenue grew 43.5%.The company burned through $430M in cash in the second quarter.
REVENUE AND OPERATING LOSSES
The company’s revenue for the second quarter consisted of $3.36B in automotive revenue and $374M from their energy and battery storage division. Automotive revenue saw an increase of 46.8% compared to the same period last year. The energy and battery storage division saw an increase of 30.6% compared to the same period last year. Automotive revenue increased by 22.75% compared to Q1 2018, largely due to the rapid increase in Model 3 sales, while energy generation and storage declined by 8.7%. Tesla deployed 84 MW of energy generation and 203 MWh of energy storage products in the second quarter as well.
MODEL 3
Tesla was able to deliver 18,449 Model 3 vehicles during the second quarter of 2018. In the quarter the company produced 28,578 Model 3’s. The company’s Q2 2018 Update Letter stated that the company still expects to reach its production goal of 6,000 Model 3’s per week by the end of August. The company is aiming to reach a gross margin of 25% on the Model 3 in the long-term but set an initial goal of break-even for the second quarter. The company beat that goal in the quarter posting a slightly positive gross margin. After conducting a complete breakdown, an automotive expert recently estimated that Tesla could achieve a 30% or higher gross margin on the vehicle. The company reported that they have received over 60,000 test drive requests for the Model 3. Most Tesla stores received their first Model 3 test drive vehicles and the company plans to continue deploying more Model 3’s to other stores, with a focus on the new Model 3 Dual Motor Performance. The company stated that early results show that the Model 3’s “test drive-to-order conversion rate” is higher than the Model S and X.
GUIDANCE FOR THE END OF 2018
Tesla still expects to deliver 100,000 Model S and X vehicles for 2018. The company also stated it targets to produce 50,000-55,000 Model 3’s in the third quarter. Tesla still did not disclose an overall production target for the Model 3 in 2018. The Model 3 is expected to carry a 15% gross margin for the third quarter and 20% in the fourth quarter.
Tesla reiterated that they expect to be GAAP profitable in both the third and fourth quarter of 2018. Tesla also stated that they expect the company to be profitable going forward, despite rapid growth.
Tesla has just over $2.23 billion in cash at the end of the quarter, down from $2.67 billion in the previous quarter.
Tesla's level of spending isn't unusual for a car company. What is unusual is Tesla's level of spending for a carmaker that sold just 100,000 vehicles in 2017 and brought in only about $3.3 billion in revenue.
General Motors spent close to $8.5 billion 2017, but it converted that spending into roughly $150 billion in revenue and a profit of nearly $13 billion.
GM shares were handily surpassed by Tesla shares in 2017, as far as market performance goes, with Tesla's market cap at one point topping GM's. But GM also returned billions to investors through share buybacks and dividends.
Tesla can't continue to ask investors to stay the course if it can't figure out a way to turn billions in capital incineration into billions in profits. Markets are nervously eyeing the Model 3 in this context because even if Tesla can hit ambitious production targets - 5,000 a week by June - it's unclear whether the car will achieve an appealing profit margin.
Some Tesla watchers have been focused on how many workers Tesla now has. Bloomberg reports nearly 40,000. But what has gotten auto-industry experts' attention is how many employees Tesla has at its factory in Fremont, California.
Automotive News noted that when Fremont was called NUMMI and was run as joint-venture between GM and Toyota, about 5,000 workers built 350,000 vehicles in 1997. Tesla, according to the publication, needed between 6,000 and 10,000 workers to make fewer than 100,000 vehicles in 2016.
To increase the Model 3's production ramp, Musk recently said that that the assembly line would run 24/7 and that the company would go on a hiring surge. So Tesla is losing money the old-fashioned way, but getting far less value out of its workers than other automakers.
Against $3.5 billion in cash, Tesla has over $9 billion in debt.
With the current cash burn and the lack of profits, that's not a sustainable situation. Tesla has gotten away with it because its soaring stock price and made raising money painless. The carmaker also issued high-yield debt for the first time last year.
Moody's downgraded Tesla's debt in March, making issuing new bonds a tricky proposition. Tesla could still issue debt that converts to equity, as it has done in the past, but to make that idea attractive to investors, Tesla would need to straighten out its production troubles, to avoid a share-price collapse in the future.
Tesla's debt load has been a lurking problem since it merged with SolarCity in 2016 and took on that company's liabilities. Tesla hasn't yet paid a price for its vulnerable balance sheet, but it's worth remembering that debt kills car companies - and kills them fast. Just as General Motors and Chrysler, both of whom declared Chapter 11 in 2009 largely because of how much they owed bondholders.
Debt exposes Tesla to interest-rate risk, a factor it doesn't have much control over. Since its IPO, Tesla has never had to contend with a rising-rate environment. But the Federal Reserve has been increasing rates, so Tesla's debt could become more difficult to service over time.