Tesla has plenty of money -- for now

Wall Street loves to worry about Tesla.

The latest point of concern is cash and credit: How much money will Tesla burn over the next year, and how much financing will it need to undertake to achieve its goal of 500,000 in annual vehicle deliveries by 2018?

According to Bloomberg’s David Welch and Dana Hull, the electric automaker has $1.3 billion in credit lines and $3.25 billion in cash.

The sticking point right now is the impending merger of Tesla and SolarCity, the struggling solar-panel installer that is run by Lyndon Rive. Rive and Tesla CEO Elon Musk are cousins and Musk is also the chairman of SolarCity.

As Welch and Hull have noted, “Oppenheimer & Co. analyst Colin Rusch said the company will need as much as $12.5 billion for capital spending, financed mainly through debt, by the end of 2018 if it closes the deal with SolarCity.”

If you accept that $12.5-billion figure, then Tesla could have some issues and will probably need to undertake yet another capital raise in 2017 (Musk has said that there won’t be one in 2016).

The maths just doesn’t work over the longer term. And for the past few weeks, Tesla stock chart has become quite contorted, as shares have jerked above and below $200. The markets are clearly concerned, and maybe confused, about what’s next for this $30-billion market cap company.

TSLA Chart 10/14/16Google FinanceUp and down and up and down and up and down.

But of course Tesla isn’t in a financial steady state: unlike, say, Ferrari, whose production has been capped at less than 10,000 vehicles annually, Tesla intends to grow sales and grow them rapidly.

If it succeeds in doing this — going from 80,000 to 90,000 deliveries in 2016 to half million in two years later — it balance sheets should improve. With its two current vehicles, the Model S sedan and the Model X SUV, Tesla could be booking double-digit profit margins.

The margins will be lower on the Model 3 mass-market vehicle, arriving in 2017, but Tesla will sell many more of them, if its nearly 375,000 in pre-orders are any indication.

Tesla’s cash position has actually been steadily improving, and as Welch and Hull report, the carmaker recently restored one its credit lines to a full $1 billion. In the past, Tesla’s CFOs have wanted to maintain at last a billion cash on the balance sheet by the end of a calendar year, and for 2016, it looks as if the company will be running well above that level.

Obviously, hitting marks with the Model 3 will be critical. Tesla can’t repeat history and experience delays, as it did with the Model X, which was three years overdue when it finally launched in 2015.

But the Model 3 isn’t a complicated vehicle. It will be built on a simple, versatile platform, most likely use steel rather than aluminium in its construction, and have a less intricate interior than the Model X, which served up a lot of production problems en route to its launch.

So Tesla may not currently have enough incoming funding to make it through 2018. But if the Model 3 hits on time, that situation could change rapidly.

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