Tesla needs capital bump for a smooth ride

Shanghai Daily, August 10, 2015

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IT'S crunch time for Tesla Motors.

The Silicon Valley carmaker is losing more than US$4,000 on every Model S electric sedan it sells, using its reckoning of operating losses, and it burned US$359 million in cash last quarter in a bull market for luxury vehicles. The company on Wednesday cut its production targets for this year and next, while Chief Executive Elon Musk said he's considering options to raise more capital, and didn't rule out selling more stock.

Musk has taken investors on a thrill ride since taking Tesla public in 2010. Now he's given himself a deadline, promising that by the first quarter of next year the company will be making enough money to fund a jump from making one expensive, low volume car to mass producing multiple models, and expanding a venture to manufacture electric power storage systems.

Tesla's shares fell almost 9 percent on Thursday and by another 2 percent on Friday as investors and analysts weighed the risks of Musk's ambitious plans for expanding the company's auto and energy storage businesses. Tesla had just US$1.15 billion on hand as of June 30, down from US$2.7 billion a year earlier.

Carmakers consume cash to pay for assembly line equipment, including metal dies and plastic molds, as well as testing to meet safety and emissions standards. A typical new car can cost US$1 billion or more to engineer and bring to market.

Established companies like General Motors Co and Ford Motor Co have amassed far larger cash cushions as they've rebuilt balance sheets battered by the 2008-09 recession. GM, restructured six years ago in a government funded bankruptcy, has targeted cash reserves of US$20 billion and had more than US$28 billion in cash equivalents as of June 30.

To be sure, GM sells more than 9 million vehicles a year, while Tesla plans to build between 50,000 and 55,000 cars this year. Tesla, most of whose cars are built to order directly, delivered 11,532 cars in the second quarter and said it had an operating loss of about US$47 million, for an operating loss per car of about US$4,000.