Tesla’s $1 Billion Cash Raise May Fall Short

Tesla’s capital raise is dangerously underpowered. The electric-car company run by Elon Musk will sell stock and notes worth a bit over $1 billion. Tesla is burning cash, and investing heavily to gear up for production of its coming Model 3. Unexpectedly small dilution pleases investors, but may miss the more important goal of capital sufficiency.

Tesla has shown it can make beautiful cars and build a rabid fan base, but it has lost money three years in a row. The firm hopes production of its first mass-market vehicle, set to begin in July, will turn things around. At a cost of $35,000 before subsidies, the new model promises to kick-start demand. Tesla plans to produce 5,000 of the cars a week by year end, and double that in 2018.

Yet Tesla has a habit of missing its goals. It will come as little surprise if the production timetable slips, the ramp-up in output proceeds more slowly and the vehicle ends up costing more than expected. There’s also no assurance that volume will result in a gusher of — or any — black ink.

Tesla had over $3 billion in cash on its balance sheet at year end. It reached this figure by selling stock, tapping its revolving credit and increasing cash owed to suppliers. An additional $1 billion helps, but it may not recharge the balance sheet sufficiently.

Tesla plans $2 billion to $2.5 billion of capital expenditure in the first half of the year. Increasing Model 3 production in 2018 probably means additional investment. That leaves little buffer for losses or possible production delays, or for the company’s cash-sucking solar business.

Investors sent Tesla’s stock up 3 percent on news it sought little cash. Perhaps the Model 3 introduction will go smoothly, and the firm can then raise more cash at a higher valuation. But market expectations start from a very lofty base. Tesla’s market capitalization is about 15 percent less than Ford’s, yet its rival makes over 50 times as many cars — more than 100,000 per week. Tesla is counting on things going very right. If they don’t, the company might be forced to raise cash on far less favorable terms.

Shoot

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