Tesla's 'close to the edge' cash foretells capital raise

Thu Feb 23, 2017 4:14pm EST
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By Alexandria Sage

SAN FRANCISCO (Reuters) - Tesla Inc (TSLA.O: Quote) Chief Elon Musk has taken big risks repeatedly since going public in 2010, but investors were spooked on Thursday after he said the electric car company could get "close to the edge" as it burns cash ahead of its crucial Model 3 launch.

Facing yet another cash crunch, Tesla will likely be forced to head to Wall Street for more capital, analysts said. Shares tumbled 5.8 percent on Thursday, their biggest intraday percentage fall in eight months.

Musk told investors after the company released its fourth-quarter results on Wednesday that the upcoming Model 3 sedan, the $35,000 mass-market vehicle on which the company's future profitability hinges, requires no additional outside funding as it readies for production this year.

"But we get very close to the edge," Musk said. "So we're considering a number of options but I think it probably makes sense to raise capital to reduce risk."

Tesla had $3.39 billion in cash and cash equivalents at the end of 2016, but most of that comes from a May stock offering, cash from its SolarCity acquisition and nearly $1 billion in draws on its credit facilities.

The company spent $448 million in cash on operating activities in the fourth quarter.

Tesla's warning of an expected $2 billion to $2.5 billion in capital expenditures in the first half of 2017 for the Model 3 leaves potentially less than a $1 billion cushion for Tesla, at a time of "high levels of execution risk," wrote Morgan Stanley analyst Adam Jonas.

Analysts estimated the company will seek $1 billion to $2.5 billion in capital in the near term.   Continued...

A Tesla Supercharger station is shown in Cabazon, California, U.S. May 18, 2016.  REUTERS/Sam Mircovich/File Photo