Kanye likes Tesla, but cash is king

drop of about 6,500 Model S and X sales, at an assumed price of about US$100,000 each, offset somewhat by the extra Model 3 sales (assuming they were high-priced versions fetching about US$50,000 apiece), adds up to a headwind of around US$320 million.

Plus, these sales won’t enjoy the extra boost to cash flow provided by those fourth-quarter sales from inventory.

Remarkably, the consensus forecast for Tesla’s cash burn in the first quarter has expanded by only about US$100 million since early January, to US$1.06 billion. While that alone would wipe out roughly a third Tesla’s bank balance, the risk is to the downside.

The same could be said for the current quarter. One of the things that helped stabilize Tesla’s share price this month was a leaked email in which Musk announced a move to “24/7 operations” to get Model 3 production up to 6,000 a week by the end of June. Investors initially latched on to the higher target and the apparent can-do spirit.

But the benefits look less impressive when you consider any numbers below the top line.

Prior to the email, Tesla’s guidance was to get to 5,000 Model 3s a week.

Assuming two eight-hour shifts for five days a week, that would imply about 63 cars eventually rolling off the production line every hour, or just over one per minute.

Taking the email at its word, Tesla now targets 6,000 a week, only with the line working 24/7. Factoring in time for maintenance, let’s say that means six days a week, each with three eight-hour shifts — or slightly less than 42 Model 3s an hour.

More cars, yes, but at the cost of implied productivity dropping by a third.

That suggests another quarter of weak margins and high cash burn could be in the offing, especially as reconfiguring the production line to deal with its “excessive automation” isn’t likely to come cheap. Little wonder Musk announced stringent cost controls in the same email.

So it seems even more likely that Tesla will need to return to the capital markets this year to replenish its bank account, despite its (caveated) claim to the contrary (I laid out the math here).

On that front, it is worth checking in on Tesla’s 2025 bonds again.

Yields on these began climbing in mid-March, providing a warning of the stock rout that quickly followed. Having stabilized, they are now climbing again. And not just because Treasury yields are up, but because the risk premium is widening once more:

News of another senior executive leaving — the head of Tesla’s Autopilot assisteddriving effort — may have helped nudge it up a bit further on Tuesday.

But the pressure on margins and cash flow provide the essential, and consistent, narrative here. Even Kanye can’t compete with that.