Tesla’s Model 3 is behind schedule
Delayed production targets raise concerns that carmaker may need to raise more cash
SAN FRANCISCO— Tesla Inc. pushed back a key production target for its pivotal Model 3 sedan again, raising questions about whether the electric-car maker may need to raise more cash. The Elon Musk-led company now expects to assemble 5,000 Model 3s a week by the end of June, delaying plans to reach that milestone by another three months. Tesla didn’t come close to achieving an initial goal to manufacture that many of the sedans a week by the end of 2017.
Tesla’s slower ramp up in manufacturing Model 3s led analysts to speculate another capital raise could be coming. The carmaker has been blowing through more than $1billion (U.S.) a quarter as it has had trouble scaling up output despite spending heavily on robots, assembly lines and tooling for the sedan that is Musk’s cheapest yet, starting at $35,000.
“Bears will point to this as another missed promise,” said Joe Spak, an analyst at RBC Capital Markets, in a note to clients Wednesday. Although a capital raise may not be required, Tesla lacks “a ton of wiggle room” and should seek more cash to mitigate risks, he wrote.
“We believe a fundraise will be necessary for Tesla in 2018,” wrote Brian Johnson, an analyst at Barclays Plc, in a report to clients Thursday. He projects the company will burn through $4.2 billion this year and assumes the company will raise $2.5 billion in an equity offering, likely during the third quarter.
Tesla reported deliveries of 1,550 Model 3s in the final three months of the year, trailing analysts’ average estimate for about 2,900 units in a Bloomberg survey.
Including Model S sedans and Model X crossovers, Tesla delivered a total of 29,870 vehicles during the fourth quarter. The company delivered 101,312 Model S and Model X vehicles for the year, exceeding its forecast for 100,000 units. Sales of those more expensive models jumped 33 per cent from 2016.
In the months leading up to launching the Model 3, Tesla raised at least $1.2 billion through an offering of stock and convertible debt in March and another $1.8 billion by tapping the junk-bond market in August.
Buyers of the latest bonds have since taken a hit, and it would likely cost Tesla more to borrow in that market again.
The 5.3-per-cent notes were yielding 6.09 per cent on Thursday after the price of the debt dropped.
Tesla still has options for financing given its equity market capitalization, said John McClain, a money manager at Diamond Hill Investment Group. The company could probably also issue unsecured, convertible or secured bonds since the market in general is so strong, he said.
“It would be concerning to me if I were an existing lender, that they pushed back production goals and it continues to be a show-me kind of story,” he said. “But I would not question their ability to finance at this point.”
In a statement Wednesday, Tesla thanked customers “who continue to stick by us while patiently waiting for their cars.”
The company announced the acquisition of Perbix, a closely held maker of automated machines used for manufacturing, back in November, a week after Musk cited challenges with automating Model 3 production.