Tesla’s stock is down 4% today on a story by
Germany’s Manager Magazine— it suggests that the car maker may face more challenges expanding in the European market than previously thought.
While Tesla has seen success in Europe — it’s the number one car in Norway, for example — there have been issues with the car company’s supply chain.
Model S Director of Programs Jerome Guillen, who was interviewed in the Manager Magazine piece, also says that Tesla needs to work on building an infrastructure of charging stations across Europe, so Tesla owners can go wherever they want without worrying about power.
Our biggest challenge is currently the development and expansion in Europe. A few weeks ago we started with the delivery of the Model S in Norway, the Netherlands, Belgium, Germany and Switzerland. The people here have been waiting for their vehicles, now we need to accelerate the handover to customers. We owe it to them easily. In addition, we need the right infrastructure.Therefore, we build a network in Europe own Tesla fast-charging stations, allow long distance travel.
What Guillen didn’t talk about, though Manager Magazine asked, is what all that building will cost Tesla. He only said that the company would “make sure that the expansion is cost-effective.”
Tesla wants to meet its Supercharger charging station target in Germany by the end of 2014. It’s trying to build in a few years what traditional car companies have spent decades doing.
This gets to the heart of the short thesis on automaker’s stock. Tesla bears say quarter after quarter that the company is burning through cash too quickly to build the infrastructure it wants, and make the improvements to supply chain that it needs.
Bank of America analyst John Lovallo addressed that directly on the company’s Q2 conference call, saying:
“If we think about cash flow for a minute… free cash flow was a use of about $US79 million in the quarter, and I think if you make the adjustments you guys were talking about… $US11 million for the DOE payment, a $US67 million increase in receivables that may not occur. That looks like the use of about a million dollars. Now, you have cap ex ramping up in the back half of the year so how are you thinking about free cash flow generation through the remainder of the year into 2014?”
Tesla CFO Deepak Ahuja could only reply that Tesla “want[s] to be very careful about burning cash…We want to stay as close as we can to a free cash flow position… but that’s not something we necessarily want to guide to. We’re going to manage it… and spend the cap ex where we need to to ensure we’re growing at the right pace.”
Apparently that’s not completely reassuring to everyone.