The trailblazer of the Renaissance of the electric car, Tesla Motors, is now undergoing issues both on the financial and the technical aspects of its work. As production rolls on, it is spending more money that it has and still production targets remain unmet. To assuage the issue, the former start up is now turning to its investors and taxpayers for financial assistance.
Tesla formally announced its plans to sell five million company shares last Tuesday for public offering. In a related move, Tesla was able to eke out a waiver of some of the government requirements in fulfilling its commitment under a previous U.S. $465 million loan package. The two moves are viewed to ease the financial pressure on the company, at least for the next few quarters, but it certainly raised issues about the long term future viability of the company.
The recent months have seen the company increasing its production of its main vehicle, the Model S. This vehicle is a high performance sedan able to get from zero to sixty miles per hour in just 4.4 seconds. While there have been deliveries made initially, the current delivery backlog stands at between four and five weeks. With this complication, the company is using up much of its cash liquidity at an increased rate, forcing the company to revise its revenue forecasts.
Carter Driscoll, an analyst at CapStone Investments observed, “Tesla’s story is starting to show some serious cracks. This shows that capital raising is a necessity, not a luxury, as the company had maintained.” This shows that cash flow was getting tight at Tesla.
The recent moves are also expected to accumulate another horde of criticisms of the Obama administration’s energy loan program. The previous flak came when Solyndra, a solar panel maker, declared bankruptcy back in 2011, defaulting on a government loan worth U.S. $535 million.
The Department of Energy was able to obtain a concession from Tesla, requiring the carmaker to submit a plan for the repayment of the loan. In response, Deepak Ahuja, CFO of Tesla, said that the changes to the loan were ‘purely a normal course of events’ as Tesla’s business model was steadily evolving.
To many analysts, Tesla is now on its critical phase of growth. The company has fully obtained the government loan and shareholders, with the new stock offering, may feel their worth would be diluted. Major concerns had been raised as share prices fell to U.S. $3.00 or a reduction of ten percent. The previous high was U.S. $38.01 and is now valued at U.S. $27.66.
As expected, many investors would be searching for signs that the Model S would lead the company out of its current doldrums. The company expects that the Model S sales would produce positive cash flows as the first two quarters of 2012 reported a net loss of U.S. $111 million.
The current issues are also expected to test the loyalty of its customer base. Those who have received their Model S vehicles are extremely pleased with its performance, many saying it has exceeded expectations. Many would be buyers are plunking down hefty sums to place reservations on the Model S. The vehicle costs about U.S. $54,700 before tax credits with the deposit at U.S. $5,000. More inclusions onto the basic model would require a higher deposit.
The deposit amounts have been a great cash reserve for the company, with the company as of June 2012, holding about U.S. $133.4 million. Should production delays continue, many question the wisdom of putting down such a large amount with no definite promise of date of delivery. In the end, the fortunes of Tesla would rely on the market size after the first adopters.