Date
24 October 2018
Tesla CEO Elon Musk acknowledged that the unprecedented level of robots used in the production of Model 3 has added complexity and delays. Photo: Bloomberg
Tesla CEO Elon Musk acknowledged that the unprecedented level of robots used in the production of Model 3 has added complexity and delays. Photo: Bloomberg

Tesla’s Musk says no need for more capital, sees profit soon

Elon Musk, chief executive of electric-car maker Tesla Inc., said the company will be profitable in the third and fourth quarters of this year and will not have to raise any money from investors, Reuters reports.

Tesla has already sought this month to play down widespread Wall Street speculation that it would need to return to capital markets this year to raise more funds for the money-losing firm as it ramps up production of the Model 3 sedan seen as crucial to its long-term profitability.

The Silicon Valley car maker, which has consistently fallen short of promised production targets and is fighting bad publicity over a fatal crash of a car using its Autopilot system, said 10 days ago it would have positive cash flow from the third quarter.

Musk went further on Friday in a tweeted response to a story in The Economist which cited estimates Tesla would need US$2.5 billion to US$3 billion this year in additional funding.

“The Economist used to be boring, but smart with a wicked dry wit. Now it’s just boring (sigh). Tesla will be profitable & cash flow+ in Q3 & Q4, so obv no need to raise money,” Musk wrote.

His remarks drove Tesla’s shares higher. The stock has gained nearly 10 percent since disclosing the Model 3 production numbers on April 3.

Musk’s claim about profit and cash flow hinges on a rapid rise in production of the Model 3 sedan, Tesla’s latest vehicle to have experienced production delays. That has postponed revenue from reaching Tesla’s bottom line from cars being delivered to customers.

An unprecedented level of robots used in the Model 3’s final assembly, in a break with automotive manufacturing norms, has added complexity and delays, which Musk acknowledged on Friday.

“Excessive automation at Tesla was a mistake,” Musk tweeted. To be precise, my mistake. Humans are underrated.”

Thomson Reuters consensus of analyst estimates predicts Tesla’s free cash flow to be negative well into 2019, thanks in part to heavy investments.

Only one of 19 analysts covering the stock see positive adjusted earnings per share in the third quarter, with that number growing to four for the fourth quarter.

Wall Street brokerage Jefferies, which provided the funding estimate cited by The Economist, said in a note last week it expects refinancing risk to remain high for Tesla until it can consistently produce 10,000 Model 3s a week.

Tela again missed its own 2,500 target for weekly production at the end of the first quarter, and analysts and fund managers doubt its ability to keep production growing to a promised 5,000 Model 3s per week in three months time.

Musk in July said Tesla was going through “manufacturing hell” in ramping up production of the Model 3.

He told CBS News in an interview that aired Friday the company “got complacent” and “put too much new technology into the Model 3 all at once”.

Part of the interview took place in a Tesla Model 3 Musk was driving with Autopilot activated at times.

Musk told CBS Tesla is currently producing 2,000 Model 3 cars a week.

Last month, Moody’s Investors Service downgraded Tesla’s credit rating to B3 from B2, reflecting “the significant shortfall in the production rate of the company’s Model 3”.

Moody’s added that its negative outlook for Tesla “reflects the likelihood that Tesla will have to undertake a large, near-term capital raise in order to refund maturing obligations and avoid a liquidity shortfall”.

Asked by CBS if there was a defect with Autopilot, Musk responded: “The system worked as described, which is that it is a hands-on system. It is not a self-driving system.”

At one point during the interview, Musk did not have his hands on the wheel and the car beeped at him to retake the wheel.

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CG

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