Tesla's unfettered ambition to drain finances - analysts

By Supantha Mukherjee

(Reuters) - Tesla Inc will face further questions about how fast it is burning through its cash pile and how soon it will have to ask creditors and shareholders for more after it unveiled its latest electric vehicles.

Investors prodded Tesla's shares 2 percent higher in early trade in New York, shrugging off worries it was over-stretching itself with the new futuristic trucks and pricey sports car launched in a glitzy event in California on Thursday.

But Chief Executive Elon Musk did not offer details about how Tesla would fund these projects, leaving Wall Street analysts skeptical about the company's ability to ramp up production as it spends money at a quick clip.

 

Tesla spent $1.1 billion on its auto business in the third quarter, and expects expenses of $1 billion in the current one. It had about $3.5 billion in cash and cash equivalents at the end of Sept. 30.

At the current cash-burn rate, it would likely be down to about $1 billion in cash by the end of the first quarter.

"In essence, all last night's event did was add to Elon Musk's shopping list of things he needs to spend money on at a time when the company is having difficulty making its base vehicle (Model 3)," Cowen analyst Jeffrey Osborne.

Tesla this month pushed back its target for volume production on the Model 3 sedan - widely seen as crucial to the company's long-term future - by about three months to fix production bottlenecks.

Osborne said Tesla's cumulative capex announcements now exceed $15 billion to $20 billion over the next few years.

Some analysts fear the trucks will be an expensive distraction for the company, which has never posted an annual profit and is in self-described "manufacturing hell" related to the $35,000 Model 3 sedan.

Jefferies analyst Philippe Houchois estimated that Tesla would need to raise $2.5 billion to $3 billion to keep production running smoothly.

"Longer term, we continue to think the capital intensity of the business model will keep returns below best-in-class auto(makers)," Houchois said in a research note.

Tesla's last debt sale in August was well received in a hot bond market, allowing the company to upsize the offering to $1.8 billion from $1.5 billion.

But the bond has underperformed in the secondary market since, suggesting it could be more challenging for Tesla to tap the high-yield debt market again so soon.

While shares in the company are up more than 40 percent this year, they have fallen 20 percent since hitting record highs in mid-September.

The Model 3 is expected to go into production in 2018, electric trucks in 2019. Production for the new Roadster sports car, a likely Ferrari rival, will start in 2020.

The first 1,000 Roadsters will cost $250,000 each, paid in full upfront, with later models starting at $200,000.

Houchois called the plan interesting, noting that it would help Tesla raise $250 million plus the $50,000 deposits on reservations.

(Reporting by Supantha Mukherjee; Additional reporting by Sonam Rai in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)