Tesla just announced that they were dropping the price on their Model 3 and also closing their entire retail store operation. I’m not surprised.
It’s no coincidence that this news dropped the day before Tesla has to pay off $920 million in convertible senior notes and right after the SEC charged Elon Musk with contempt of court. It’s all connected.
Tesla’s 4th quarter shareholder letter said that they could “comfortably” pay this March 1st debt maturity out of their $3.69 billion cash reserves. However, that’s not the whole story.
Tesla had $3.69 billion in cash at the stroke of midnight on Dec 31st. But their average cash balance equates closer to $1.5 billion. Without getting into a lot of details, you can get a picture of a company’s real cash balance by analyzing the interest. It looks like Tesla temporarily goosed cash through an assortment of accounting tricks. That $3.69 billion looks more and more like a bogus number conjured for public consumption.
Elon Musk has stated in the past that Tesla needs at least a billion dollars to really run their operations at a basic level. If they truly only have about $1.5 billion in the bank, and they are about to pay out $920 million, everything today makes a lot of sense.
Elon Musk’s troubles with the SEC are having more of an impact than most people realize. I suspect that behind the scenes the SEC has precluded Tesla from accessing the capital markets. There will be no stock offering to save the day. I also suspect that big banks are turning Tesla away due to the impending rendezvous with a federal judge considering the SEC’s contempt charge.
Tesla is running out of cash. It looks like Tesla is trying to raise cash from customer deposits. Reports out of Europe state that Tesla is demanding that the entire car amount be paid in advance. And now Tesla just opened the floodgates on the $35K “base” model. I put base in quotes because it is sounding like Tesla is going to rework the thousands upon thousands of unsold Model 3s sitting unwanted in lots all over California. Base Model 3 customers are being told that they need to make an additional deposit of $2,500 immediately to be put on the list.
The biggest expense that a company has are people. And Tesla just announced their 3rd mass layoff of the year. First the factory workers, then the delivery teams, and now the retail stores. Tesla is running out of money fast. So they’re trying to supercharge deposits while they eliminate heads.
I was a financial analyst for Gateway Computers when we started to close down our Country Store network. We were shifting to predominantly online sales and what few retail partnerships we had. Guess what happened? Gateway immediately lost about 30% of their sales. Gateway never recovered from that move and eventually Acer bought them and basically shut everything down. Closing your retail network is more about buying time and avoiding bankruptcy.
For Elon Musk to take such a drastic measure, the situation must look absolutely horrific behind the scenes. This wasn’t about lowering the cost of the Model 3. This was about surviving the next 60 days. Tesla doesn’t have the luxury of worrying about the 2nd half of 2019 right now. But once the initial rush of European premium orders are exhausted, it’s all downhill from there.
Tesla’s 4th quarter shareholder letter said that they could “comfortably” pay this March 1st debt maturity out of their $3.69 billion cash reserves. However, that’s not the whole story.
Tesla had $3.69 billion in cash at the stroke of midnight on Dec 31st. But their average cash balance equates closer to $1.5 billion. Without getting into a lot of details, you can get a picture of a company’s real cash balance by analyzing the interest. It looks like Tesla temporarily goosed cash through an assortment of accounting tricks. That $3.69 billion looks more and more like a bogus number conjured for public consumption.
Elon Musk has stated in the past that Tesla needs at least a billion dollars to really run their operations at a basic level. If they truly only have about $1.5 billion in the bank, and they are about to pay out $920 million, everything today makes a lot of sense.
Elon Musk’s troubles with the SEC are having more of an impact than most people realize. I suspect that behind the scenes the SEC has precluded Tesla from accessing the capital markets. There will be no stock offering to save the day. I also suspect that big banks are turning Tesla away due to the impending rendezvous with a federal judge considering the SEC’s contempt charge.
Tesla is running out of cash. It looks like Tesla is trying to raise cash from customer deposits. Reports out of Europe state that Tesla is demanding that the entire car amount be paid in advance. And now Tesla just opened the floodgates on the $35K “base” model. I put base in quotes because it is sounding like Tesla is going to rework the thousands upon thousands of unsold Model 3s sitting unwanted in lots all over California. Base Model 3 customers are being told that they need to make an additional deposit of $2,500 immediately to be put on the list.
The biggest expense that a company has are people. And Tesla just announced their 3rd mass layoff of the year. First the factory workers, then the delivery teams, and now the retail stores. Tesla is running out of money fast. So they’re trying to supercharge deposits while they eliminate heads.
I was a financial analyst for Gateway Computers when we started to close down our Country Store network. We were shifting to predominantly online sales and what few retail partnerships we had. Guess what happened? Gateway immediately lost about 30% of their sales. Gateway never recovered from that move and eventually Acer bought them and basically shut everything down. Closing your retail network is more about buying time and avoiding bankruptcy.
For Elon Musk to take such a drastic measure, the situation must look absolutely horrific behind the scenes. This wasn’t about lowering the cost of the Model 3. This was about surviving the next 60 days. Tesla doesn’t have the luxury of worrying about the 2nd half of 2019 right now. But once the initial rush of European premium orders are exhausted, it’s all downhill from there.
RSS Feed