Musk says Tesla will be self-funded
Including its IPO, company raised $3.9 billion from stock sales
The most eye-popping moment in Tesla’s earnings call with analysts Wednesday was not when chief executive Elon Musk apologized to the analysts he dissed on a previous call in May. It was not the fact that Tesla posted a $717-million (U.S.) loss for the quarter, or cut down on its cash burn.
The real surprise came when Musk and his chief financial officer, Deepak Ahuja, indicated the company won’t ever need to raise capital from another sale of stock, and can fund its growth mainly through internally generated cash and proceeds from Chinese debt.
“We will not be raising equity at any point,” Musk said. “At least that’s — I have no expectation of doing so, do not plan to do so.”
Ahuja added: “We’re executing on an operating plan that keeps us sufficiently self-funded, despite our (capital expenditure) needs and our debt maturing, and still keep a very healthy balance on our balance sheet.”
The statements go a big step beyond Musk’s previous position that Tesla wouldn’t need new equity funding in 2018.
And they may reflect the reality of Tesla’s complicated relationship with Wall Street, where the company is one of the most shorted stocks. Including its 2010 initial public offering, Tesla has raised $3.9 billion from stock sales.
Funding growth out of Tesla’s cash flow, however, presents a daunting challenge. Just in the second quarter, which ended June 30, operating cash flow was negative, with $743 million flying out the door.
The company will need to turn that number positive — and fast.
Musk said Tesla will do that by becoming more efficient and building and selling a lot more Model 3 sedans. Tesla said it built 28,578 Model 3s in the second quarter. On Wednesday, the company said it will produce 50,000 to 55,000 Model 3s in the current quarter.
Economies of scale and greater efficiency will boost profits on each car — and operating cash flow — as production builds, Musk said. Up to now, Tesla has lost money on each Model 3 it built.
The efficiency gains Tesla has made recently, though, largely reflect its correction of early Model 3 production mistakes at its Fremont, Calif., automobile plant. Musk and his team installed legions of robots in places where human hands still work better than machines, such as running wires behind a dashboard. Sections of the system needed to be pulled out and replaced. A new assembly line was built on a parking lot, covered by a high-end tent.
Similar problems plagued operations at Tesla’s battery plant in Nevada, where robotic systems couldn’t be made to work and new equipment, with new software, had to be flown in from Germany. Battery packs were assembled by hand in the meantime. Musk said Wednesday he learned a lesson: “Start simple and get fancy later. Fancy’s going to bite you in the ass.”