Tesla’s Model 3 Challenges Leave Little Wiggle Room on Cash

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.

The Tesla Model 3  before the Los Angeles Auto Show.
Photographer: Patrick G. Fallon/Bloomberg

Tesla’ s more measured ramp up in manufacturing Model 3s helped analysts to speculate another capital make you could be coming. The carmaker has been blowing through more than $1 billion a quarter as it’ s 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, ” Joe Spak, an analyst at RBC Capital Markets, said in a note to clients Wednesday. While a capital raise may not be required, Tesla lacks “ a ton of wiggle room” and should seek more cash to mitigate risks, he wrote.

Tesla shares pared losses Thursday after falling as much as 3. 6 percent, the biggest intraday drop in five weeks. The stock climbed 46 percent in 2017 and the company ended the year with a $52. 3 billion market capitalization, placing it ahead of Ford Motor Co. and behind General Motors Co.

Fundraising ‘ Necessary’

“ We believe a fundraise will be necessary for Tesla in 2018, ” Brian Johnson, an analyst at Barclays Plc, wrote 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 News survey.

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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.

Lofty Goals

“ Tesla has really lofty goals for automation, ” Tasha Keeney, an analyst at ARK Investment Management, which holds Tesla shares, said in a phone interview. “ One you have it right you can ramp really quickly, but getting to that phase is the difficult part. ”

Tesla ended September with about $3. 5 billion cash in hand and projected another $1 billion in capital expenditures during the last three months of the year. By postponing production plans, the company may also be deferring spending, said Jeff Osborne, an analyst at Cowen & Co. who has the equivalent of a sell rating on the shares.

The company may need to raise another $1 billion to $1. 5 billion over the next six months, Osborne said Thursday on Bloomberg Television.

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Tesla reported 860 Model 3 sedans were in transit to customers at the end of December. The company said it made significant progress on speeding up manufacturing of the sedan late last month, producing 793 units in the last seven working days.

“ Tesla is always a quarter away, and now you have to wait six months to get your report card on your investment thesis, ” Osborne said by phone Wednesday. “ They’ ve kicked the can down the road. ”