According to Bloomberg the amount of cash that electric car maker Tesla is burning in a minute is $6,500. While the motor vehicle manufacturing sector is a cash-intensive business Tesla is in a class of its own since it hasn’t recorded an annual profit since the Initial Public Offering in 2010. It is expected that at the current rate Tesla will exhaust the amount of cash it has before the year ends. Currently the amount of cash at hand that Tesla has is around $3.5 billion as well as lines of credit.
The chief executive officer of Tesla, Elon Musk, has ruled out a capital raise and has said that later this year the electric firm will begin bringing in more than what it spends. However there are several things that could go wrong and this includes buyers of the Model 3 who might ask for their $1,000 deposit back. This is due to the delays in production that the mass market vehicle of Tesla has been experiencing.
Tesla has indicated that around 400,000 customers have made a deposit for the Model 3 but to deliver all the units will take quite some time at the current production rate. Consequently some customers might decide they can’t wait any longer.
Previously Tesla has made commitments not to raise money only to end up doing the opposite. This has usually resulted in investors having a positive sentiment towards the capital raises and this has usually resulted in the stock of the electric car maker appreciating. In light of this fact Tesla could do the same but it would be a signal of poor capital management as well as problems associated with the production of the Model 3. And with huge losses expected in bother Q1 and Q2 investors are likely to turn to the exits this time round.
Return on investment
While the level of spending at Tesla is not unusual especially in the car manufacturing business, what is problematic is the return on investment. In 2017 for instance Tesla sold around 100,000 cars and this generated revenues of approximately $3.3 billion. General Motors on the other hand spent nearly $8.5 billion last year and this generated revenues of $150 billion and close to $13 billion in profits.
Another problem are the inefficiency levels at Tesla. When Tesla’s Fremont plant was in the hands of a Toyota and GM joint venture 5,000 employees produced 350,000 cars in 1997. Tesla on the hand needed more than 6,000 workers to produce cars numbering fewer than 100,000 in 2016.