NEW YORK • Mr Elon Musk said last week that Tesla is designing a new sports car that could go from zero to 97kmh in 1.9 seconds.
Not bad, but here's a speed number that investors might want to focus on instead: Over the past 12 months, the electric-car maker has been burning money at a clip of about US$8,000 (S$10,800) a minute (or US$480,000 an hour), Bloomberg data shows.
At this pace, the company is on track to exhaust its current cash pile on Aug 6 next year. To be fair, few Tesla watchers expect the cash burn to continue at quite such a breakneck pace, and the company itself says it is ramping up output of its all-important Model 3, which will bring money in the door.
Investors do not seem concerned. Tesla shares rose almost 3 per cent to US$317.81 on Tuesday, giving it a market capitalisation of US$53 billion. Ford Motor is worth US$48 billion.
But still, its need for fresh cash came into high relief last week when Mr Musk unveiled his latest plan to raise funds. He is asking customers to pay him upfront to order vehicles that may not be delivered for years.
The Founders Series Roadster will cost buyers a US$250,000 down payment even though it is not coming for more than two years. Orders of those cars are capped at 1,000, meaning they could generate US$250 million. Tesla is charging a total of US$50,000 for reservations of the regular Roadster.
But all this is a pittance compared with Tesla's financial needs. It is blowing through more than US$1 billion a quarter, thanks to massive investment in the Model 3, a US$35,000 car looking less likely to generate a return any time soon.
"Whether they can last another 10 months or a year, he needs money, and quickly," said senior analyst Kevin Tynan of Bloomberg Intelligence, who estimates Tesla will be required to raise at least US$2 billion in fresh capital by mid-2018.
Tesla has said it has ample money to meet its target of producing 5,000 Model 3 sedans by the end of March next year. After that date, the company expects to "generate significant cash flows from operating activities", Tesla said in a Nov 1 letter to shareholders.
Tesla's capital expenditures should also decline as the company pays off its expenses related to the Model 3, chief financial officer Deepak Ahuja said.
Its options are limited. It is already drawing down on more of its revolving credit facilities than ever before.
And while the bond market is a possible route, it may not be especially welcoming right now. Investors who bought US$1.8 billion of debt three months ago remain underwater even after the notes recovered a bit from a low of 93.88 US cents on the dollar early this month.
That may leave selling equity as the most viable option. But that, of course, would dilute existing shareholders, and Mr Musk, at 20 per cent, is the biggest.
"So long as the company is burning cash, it will remain dependent on the patience and enthusiasm of public markets or the deep pockets of a white knight," said money manager Christian Hoffmann of Thornburg Investment Management.
BLOOMBERG
