Tesla is trying to figure out how to build the Model 3 cars it has long promised while also trying to avoid running out of cash.
The company said Wednesday that it burned through $1.3 billion in the most recent quarter -- far more than Wall Street had been expected -- and posted the largest quarterly loss in the company's history.
And its guidance suggested it could burn through another $1 billion in the current quarter as it tries to fix its production woes.
That has some worried that the automaker could run into a cash crunch.
"At the current burn rate [Tesla] would be below its $1 billion operating cash target in two quarters," said Colin Langan, an auto analyst with UBS. He recommends that investors sell Tesla shares. He said that Tesla will need additional cash to execute on its plans beyond the Model 3, such as releasing a new SUV and expanding its network of stores and charging stations.
The mass market Model 3 is a make-or-break car for the company, which until now has sold luxury cars. The new model was supposed to be rolling off of assembly lines at a rate of 5,000 a week by the end of this year. But problems at its Gigafactory battery plant will push that target back to at least March, CEO Elon Musk said Wednesday evening. Company officials now can't say when they'll reach their goal of producing 10,000 Model 3's a week. They originally promised that level of output by sometime next year.
Shares of Tesla plunged 7% in trading Thursday, although they are still up nearly 40% so far this year.
Tesla executives insists it has the cash it needs to get production of the Model 3 up to 5,000 a week by March, and that once it does that, the cash it will get from the increased sales that will generate will give the cash it needs. And they insist they know how to fix their problems, especially in the assembly of batteries that will power the cars.
"If you talked to me three weeks ago, I would have been quite pessimistic," Musk admitted to investors Wednesday. "But now it's pretty obvious what we need to do. It's just a matter of working seven days a week to do it."
The cash burn might not matter as much as long as the company can keep raising the cash it needs from financial markets. Adam Jonas, a Morgan Stanley auto analyst, wrote that he's "somewhat concerned" about the rate of spending cash, but confident about the willingness of capital markets to continue to fund Tesla's growth plans "for now."
Potential customers for the Model 3 seem willing to wait as long as it takes to get the car, said Jessica Caldwell, Edmunds' executive director of industry analysis. But she said investors won't have the same unlimited patience.
"It does seems [Tesla has] an endless amount of resources since they're such a Wall Street darling," she said. "But it's important for them to prove they can fix this. If they don't show better production by the first quarter of 2018, that would be a red flag for investors."
Musk insisted the growing pains are natural since Tesla is expanding so fast.
"We're talking about a rate of growth faster than the Model T, which is the fastest in history. So these are nutty growth rates," he told investors.
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