Tesla’s Cash Flow Crunch: Can the Company Pull Through? [Video]

Tesla has gone through several billion dollars without returning significant profits. Now they’re facing a cash flow crunch.

Last month, reports emerged that Tesla was burning through its cash flows at a major pace. In fact, the company was spending $6,500 a minute as their workforce swells and their liabilities grow. It’s nothing new for companies to run on a deficit to fund new projects, like production of the Model 3. However, the time comes where a company needs to start moving toward turning a profit if they want to see future investment and expansion. As it stands, Tesla has been missing its production targets with the Model 3, and it looks like the prospect of profits are still a long way off. With the company going through more than $700 million a quarter (based on its Q1 2018 results), will it run out of cash in the near future? We take a moment to chat with TFLcar’s EV expert Anton Wahlman to see what Tesla’s current prospects are.

Tesla expects to be cash flow positive in the third and fourth quarters of 2018, but that’s difficult while the company’s production issues continue. As with any other company, they need capital to survive. The company’s cash balance stood at $2.7 billion at the end of the first quarter, as opposed to $3.4 billion three months prior. In the same amount of time, its debt rose from $10.3 billion to $10.8 billion. However, Tesla and its CEO – Elon Musk – are holding off on raising capital, as new debt offerings could be a costly gamble for the company. Such a move could affect Tesla’s future creditworthiness, and it dilutes current shareholders’ stakes in the company.

Tesla's Cash Flow Crunch: Can the Company Pull Through?
Tesla needs to improve cash flows in order to fund pending projects, like the Roadster. [Photo: Tesla]

No raising capital, says Musk

In the main, Tesla only has one option if it’s not going to raise capital. It needs to start turning a profit. The company does have some options there. Primarily, Tesla needs to manage its debt and fix its production issues. Musk maintains the Model 3’s production will continue to ramp up. Not only that, but the company will reportedly go through a major restructuring operation to cut down on its overhead. Right now, Tesla expects to produce 5,000 to 6,000 Model 3s per week by Q3 2018, up from 2,000 this past quarter.

While the company’s production will increase – as will its margins – analysts state the company could benefit from a cushion. The current state of affairs could mean a moment of reckoning for Musk, and for Tesla. If the company won’t raise capital and can’t turn a profit, its future may be at stake. With competitors aiming to unseat Tesla’s dominance of the EV market, the crunch is on to catapult the company to profitability.

It’s unclear at this time where Tesla may end up in the coming months. If its cash flow situation improves, we’ll see many more Model 3s and Tesla’s upcoming models on the road in the coming years.

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