Cash was never really a strong suit for Tesla. However, it looks like its hurting the company even more now. Analysis by Reuters of company’s recent financial status points to a dismal cash picture. According to the report, Tesla is now losing a stagering $4ooo over every car it is sells, amounting to a total of $359 Million worth of losses.
The company, which went public in 2010 and has since then taken up selling the Model S electric sedan, apparently lost over $359 million in only the last quarter. The folks running the company seem to be pretty worried by the going ons and according to Chief Executive Elon Musk, the company is considering various options, that may also include selling more stock. According to UBS Securities analyst Colin Langan, who has a sell rating on the stock,
A capital raise, given the way they’re burning cash today, given the fact that they have future investment needs, seems very likely at some point,
For now though, the company has cut down on production targets for this year as well as for the next.
The move comes even as shares from the company recorded a fall of 9 percent on Thursday and slipped another 2 percent on Friday. However, Musk hopes to reverse the fortunes of the company by the first quarter of 2016, by which time he hopes to be able to stir the company from making a few single, expensive, Sedan class cars to multiple models that are produced and sold in bulk.
While the plans are great — as almost all plans are — the question remains that will Tesla have enough funding to bring to bear on its ambitious new project of manufacturing multiple, new car models?
The answer is what is bringing Tesla stocks plummeting downwards, ever since Musk announced his strategy.
A typical car production process, that includes getting assembly line equipment including dies and moulds, testing to meet safety and emissions standards etc. can cost anywhere about $ 1 Billion. Which is why car manufacturers always have a surplus amount of cash to fall back on while planning a new car. General Motors Co for example, has targeted cash reserves of $20 billion with more than $28 billion in cash equivalents as of June 30. Tesla by comparison, had only $1.15 billion of reserves by June 30, which is actually less than the $2.67 billion it had a year earlier.
Numbers are another reason that can account for the losses the company has been facing as well as why investor confidence in Tesla may be shrinking.
The company plans to manufacture and sell around 50,000 and 55,000 cars this year. Compare that to General Motors, which sells over 9 million vehicles every year, and it’s easy to see why Tesla’s is accumulating losses. Sure enough, Tesla’s cars at the moment are all luxury, built and delivered to order. However, that comes in useful only when you are picking up a hefty profit on every model sold. Tesla on the other hand, delivered about 11,532 cars in the second quarter with a total loss of $47 million, which totals up to a loss of $4,000 per car.
However, there is also the fact to consider that Tesla handles its balance sheet using methods different from what the other carmakers, such as Ford and GM, apply. According to the GAAP method applied by the Detroit automakers, Tesla’s losses per vehicle, have widened to $14,758 from $3,794 in the second quarter of 2014.
Tesla, on the other hand has a different story to tell. According to the company, the GAAP accounting does not take into consideration revenues and profits from Model S sedans that customers lease, which amounted to $61.9 million in the second quarter.
Things are not all that bad after all and the company’s stocks — despite the fall they have taken — are still 70 percent higher than they were two years ago. The company is also frantically working to increase the sales volume, launching the Model S 90D and P90D high performance cars at a price premium of $10,000 while also offering upgrades to Model S 85 and 85D for $5,000.
Nonetheless, folks over at the company, including CEO Musk, are doing their hardest to pull out of this phase — something they have done in the past, including during the cash shortage phase of 2012 when the company was about to produce the Model S and Musk brought in extra cash. Everyone hopes that the company will pull through again, and eventually manage to raise enough capital to embark on the next phase of its car manufacturing journey.