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Analysts Question Relentless Finance Draining By Tesla

Analysts Question Relentless Finance Draining By Tesla
Tesla faced a barrage of questions related to its continuous cash burning and about when and how it will be forced to ask its creditors and shareholders for more money. All this following the unveiling of its latest electric vehicles.
At a glitzy event in California, Tesla unveiled its new futuristic trucks and the costly sports car and the questions by investors about the company financially over-stretching itself in doing so were shrugged off after its shares rose by 2 percent in early trade in New York.
Tesla has been spending money at a fast clip and there were skeptics among investors who question about the ability of the company to ramp up production because its Chief Executive Elon Musk did not offer any further details related to how the company would finance the announced projects.
After spending $1.1 billion in the third quarter of the current fiscal on its auto business, Tesla is planning to expend another $1 billion in the fourth quarter. By the end of September, the company had about $3.5 billion in cash and cash equivalents.
The cash and cash equivalents by the end of the first quarter next year would come done to about $1 billion if the company continues to spend at the current rate.
“In essence, all last night’s event did was add to Elon Musk’s shopping list of things he needs to spend money on at a time when the company is having difficulty making its base vehicle (Model 3),” Cowen analyst Jeffrey Osborne.
With the aim of fixing the production problems, the company extended its announced launch of the Model 3 sedan by about three months. This launch is critical for the long-term sustainability of the company.
Over the next few years, the cumulative capex announcements of the company would surpass $15 billion to $20 billion, Osborne said.
Tesla is in self-described “manufacturing hell” with regards to its $35,000 Model 3 sedan and has never been able to make an annual profit and this is why some analysts believe that the trucks project could turn out to be an expensive distraction.
To ensure that the production is kept running smoothly, tesla would require $2.5 billion to $3 billion finance, estimated Jefferies analyst Philippe Houchois.
“Longer term, we continue to think the capital intensity of the business model will keep returns below best-in-class auto(makers),” Houchois said in a research note.
The company was able to raise its debt sale to $1.8 billion from $1.5 billion in August driven by a hot bond market.
The high-yield debt market could be tough for tesla to tap into because the bond that it earlier released has underperformed in the secondary market.
The shares of the company hit a record high in September but have since fallen about 20% even though on the overall, its shares are up more than 40 percent this year.
While electric trucks are expected to be manufactured from 2019, the Model 3 is anticipated to go into production in 2018.

Christopher J. Mitchell

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