Many people want Tesla to succeed. But the truth is Tesla is a company that is founded on crony capitalism. As such it has structural weaknesses built into the company.
We like the idea of electric cars. The fastest cars in the world are at least partly electric these days. But electric cars must work within the market, without massive subsidies and other gifts given by politicians but paid for by taxpayers just because a company is “green.” (Often these companies aren’t very “green” at all.)
And while the abovementioned Jefferies’ forecast may be aggressive, UBS analyst Colin Langan has estimated that Tesla, which ended 2017 with $3.37 billion in cash, could fall below a cushion of $1 billion at the end of June due to estimated negative free cash flow of $1.6 billion in the first half of the year. Some, like Bernstein, put that estimate higher, at negative $1.8 billion.
It gets worse, because if one subtracts another $1.2 billion for 2018 debt refinancing and accrued liabilities reduces Tesla’s cash level to $600 million.
In short, Tesla – with its chronic production delays – will certainly need to raise capital, although one can see why Musk, who has repeatedly underestimated his capital requirements and has repeatedly raised money, whether through equity or debt, even after claiming it had no need to do so.
The only question is whether it will do so when it can, at preferential terms, or when it has to at terms dictated by the market.
Meanwhile, “The company’s financial predictions may be losing credibility within the financial community,” wrote Cowen & Co analyst Jeffrey Osborne in a recent note to clients.
It’s too early to call a financial spiral down. (Though some have already.) But Musk is in deep trouble right now whether he wants to admit it or not.