Wednesday, May 9, 2018

"Tesla probably needs to raise capital this year" (TSLA)

At times I forget that normal people don't obsess over the numbers as much as some of us who, having obsessed, move on to jokes.
All the while unaware that the normals didn't witness the obsessing and so would be correct in assuming flippancy where there actually is (ahem) mastery.
(he said modestly)

We were crunching the numbers on Tesla's cash requirements two years ago and like the caravan in the proverb, moved on.
Here's a February 2017 post, "Tesla: Now Comes the Hard Part" (TSLA)":
Following on my mini-rant-immediately below- about short-seller Andrew Left and his "lets pretend I didn't say that" approach to market communication, specifically Tesla and NVIDIA, fairness dictates I acknowledge a couple of the biggest concerns of the market.

First up is the execution risk in the simultaneous ramp-up of battery production in Nevada and Model 3 vehicles in California......

.... Secondly and more importantly is the financing gap that we've been harping on for the last year.
Tesla will need a minimum of $3 billion and some estimates go as high as $12 billion to complete the build-out of the gigafactory; the ramp-up of the SolarCity plant in New York, the second gigafactory initially rumored to be built in Europe but now in the U.S. according to one analyst, the cost of funding the operating losses of both SCTY and TSLA and the hundreds of millions that will be needed for working capital as Model 3 production ramps.

On the plus side Mr. Musk has done some under-the-radar financing stuff that didn't require public offerings of securities and bought the company some time:...
And here is another obsessive, Alexandra de Alphaville on May 3 with the headline post:
Elon Musk seems to struggle to focus whenever capital markets are discussed.

In response to an April story from the Economist, which discussed analysts' forecasts that the company would need to raise cash this year, Musk denied Tesla would need to tap markets and called the publication “boring (sigh)”:
Wednesday's interruption heard 'round the world began after analyst Toni Sacconaghi asked about the company's “capital requirement” given Model 3 capex projections.

Even Wall Street analysts who performed the apparently necessary ceremonial ablutions didn't receive much insight into the company's capital needs. Adam Jonas from Morgan Stanley, for example, took the executive at his word. Perhaps the company didn't need to raise capital, but ... could it want to raise capital? Because capital is a totally reasonable thing to want when you are burning $1.1bn of cash in a quarter, even if “obv no need to raise money.”

From the earnings call:
Adam Michael Jonas Morgan Stanley, Research Division - MD
Elon, so you repeatedly said, I think, in recent weeks that you do not need to issue equity capital at Tesla. I think many investors on this call would say it's better to raise capital when you don't need to. So I guess first question is...

Elon R. Musk Tesla, Inc. - Co-Founder, Chairman, CEO & Product Architect

I disagree.

Adam Michael Jonas

Yes. You may not need to, but do you want to?

Elon R. Musk

No. I specifically don't want to.

Adam Michael Jonas

Perfect. Okay...
The ardent genuflections of Benjamin Kallo of R.W. Baird gained no favour from Musk, either, as he tried to link the company's performance to its shareholders' welfare:
Benjamin Joseph Kallo Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst
So I remember the Barron's story, I don't know if it was fake news or not, which you hung up on about your battery cost. And I don't want to ask a mundane question, so -- but I think it's important because one of your stakeholders are shareholders right now. And so far, we've had a couple pushouts in production. And is there a way that you can update us when you get to that 3,000 number or 4,000 number per week? I mean, you -- you're active on Twitter. Can you just let us know? Because -- we're going to have a big vacuum here and there's a lot of news flow out there that makes volatility into the stock. It makes it hard for people to own even though you have a lot of believers out there...

Elon R. Musk
Yes. Actually, the -- what's -- Tesla's such a leaky server of information that I think the news will leak pretty quickly. Also people track registrations very closely. So at most, any information that we provide would be 1 week or 2 in advance of what will become public knowledge just due to vehicle registrations and shipments that are tracked very carefully. So that really, the problem is like people get too focused on like what's happening in the space of a few weeks or a few months. This is -- it's an old maxim of investing, you should not be focused on short-term things. You should be focused on long-term things. We have no interest in satisfying the desires of day traders, like we couldn't care less. Please sell our stock and don't buy it.

Benjamin Joseph Kallo
I completely understand your frustrations, and I'm frustrated too on how myopic we are right now. They also say that great years are made out of quarters and great decades are made out of years. So everyone's short-term focused in some ways ,and volatility has a way of taking people out even if they are strong and want to be there. And so anything you can to do to help in the near term on that, I think it's helpful for the stock.

Elon R. Musk
I mean, I think that if people are concerned about volatility, they should definitely not buy our stock. I am not here to convince you to buy our stock. Do not buy it if volatility is scary. There you go.
One concern for the Tesla shareholders who find dilution scarier than volatility: Almost every observer who isn't Elon Musk says the company will need to raise capital this year.

UBS, for example, has said “it's a question of when, not if”. Besides its $1.1bn cash burn and “aggressive product plans” including a Model Y (now in 2020), the company has a lot of debt maturing in the next year.

This handy schedule from the bank shows that Tesla has $230m of convertible notes maturing in November -- and they are extremely out of the money at a conversion price of $560.60. It also has a $157m term loan maturing in December, and even more debt is maturing in 2019....MUCH MORE
My rambling introduction was triggered by a couple comments on an earlier FT Alphaville post on earnings calls in general and the wonder that is Tesla in particular,  Thursday May 3's “Great quarter guys!":
...Scourge of the Economists 6 days ago
Look, we know Mr Musk is an impatient visionary with poor financial control instincts. But Tesla is big enough to dilute that failing and has professional financial staff. So forget Mr Musk’s gaffes. The only thing that actually matters is the numbers.

The stock is way too high. It will plummet. But the question everyone wants an answer to is will Tesla run out of cash or not ?

You are a financial newspaper. Please give us a reasoned, calculated answer dealing in specific items like the sales of Models S, X and 3, the likely gross and net margins, cash at hand, receivables and financing items.
Responding for the FT/FT Alphaville was Bryce (The Enforcer) Elder
Bryce Elder/FT 5 days ago
@Scourge of the Economists
Fifteen stories since Tuesday morning, mate:
Never mind, moving on, I'll see myself out, etc.