Elon Musk ekes out Tesla breathing space, but needs to start churning out cash

Elon Musk has eked out some breathing space for Tesla. The $50 billion electriccar maker burned less cash last quarter. It also started cutting 9 percent of its workforce. Along with producing more Model 3s, the company’s volatile chief executive reckons that should turn the company profitable in the second half of the year.

Tesla incinerated more than $400 million of greenbacks in the quarter to June. That’s fewer than the $700 million it ran through in the first three months of the year and better than expected by Wall Street analysts. Musk even apologized on Wednesday’s earnings call for deriding some of their questions as “boring” and “bonehead” in May.

His outfit now has $2.2 billion in cash. If he manages to tow Tesla out of the red by the end of 2018, there’s a chance the figure won’t dip below the $1.5 billion or so needed to keep the factory gates open, as estimated by Citigroup.

Tesla, though, also ended the second quarter with an extra $400 million of accounts payable – in other words, bills from suppliers and the like. That’s not necessarily problematic, but it could mean the reduction in the cash burn is not as big or as sustainable as it appears.

What’s more, Tesla has $1.1 billion of bonds coming due by February. Assume another $300 million of cash outflows before the company turns profitable and the carmaker would have under $800 million in readies by the middle of next year’s first quarter.

That means it has to go from constantly burning cash to generating decent amounts before the end of this year if it wants to avoid having to raise more equity.

Many investors are still believers. Tesla’s shares are still worth a whopping 35 times the mean of analysts’ estimates for 2020 earnings, according to Thomson Reuters I/B/E/S.

Others, though, are unconvinced. Tesla bonds trade at around 89 cents on the dollar. And the stock has fallen almost a fifth from its peak in June.

Distractions like Musk’s badmouthing last month of a diver involved in rescuing the Thai boys trapped in a cave haven’t helped. If the boss fails to start churning out cash in the next few months, he could be in for more market punishment.