Why Musk's new directive at Tesla has become 'cash is king'

SAN FRANCISCO — Tesla Motors Inc., facing a flood of red ink from the slower-than-planned rollout of the Model X crossover, signaled last week that a new era of cash-flow consciousness is underway at the electric car manufacturer.

In an earnings report Wednesday, the Palo Alto, Calif., company reported a net loss of $ 320 million for the fourth quarter of 2015 and a total of $ 889 million in losses for the year, drawing down the company’s cash reserves to $ 1.2 billion.

CEO Elon Musk and newly hired CFO Jason Wheeler told analysts that Tesla’s situation should improve in 2016. The company expects to deliver 80,000 to 90,000 vehicles for the year, an increase of roughly 60 percent to 80 percent, helping the company avoid a cash crunch even as it invests $ 1.5 billion in capital projects.

Wheeler: “Nice comfort level”

“My mandate from Elon is clear,” said Wheeler, formerly vice president of finance at Google, during his first quarterly earnings call at Tesla. “Cash is king.” 

Wheeler said he sees $ 1 billion in cash as “a nice comfort level” and that Tesla plans to draw upon an asset-backed revolving credit facility in 2016 to strengthen its cash position. 

In a letter to investors last week, Tesla said it should turn a profit in the fourth quarter of 2016, based on generally accepted accounting principles. When calculated using Tesla’s preferred non-GAAP accounting techniques, which are more forgiving about income from leased vehicles, Tesla expects to be profitable for the full year. 

Cash burn

Tesla burned through cash at a rapid rate in 2015 as it built its massive factory for lithium ion batteries in Nevada, ramped up development of the $ 35,000-and-up Model 3 and expanded the paint shop at its assembly plant in Fremont, Calif. 

Losses mounted when manufacturing glitches, some involving simple components such as chrome-plated trim pieces, created delays in the ramp-up for the Model X. Tesla delivered just 208 of the crossovers in the fourth quarter of 2015; by the second quarter of 2016, the company wants to be building 1,000 per week. 

“The last several months have been quite excruciating,” said Musk. “Many late nights and weekends. But I think we’re through the woods at this point.” 

More investments

Tesla said it has another $ 1.5 billion in capital investments planned for 2016.

That includes opening 80 retail stores and 300 proprietary Supercharger charging stations, as well as finishing construction of the battery factory. 

Tesla said it remains on track to launch the Model 3 at the end of 2017, and that it plans to unveil the design of the electric car during an event March 31.

You can reach Gabe Nelson at gnelson@crain.com.


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