Tesla Motors has given itself a space to maneuver as it works towards profitability. But, with its stake almost supported to its high, don’t rule out the company to invest more spending, while it is capable of doing that.
Recently, Tesla Motors took out revolving credit consent with several major banks, potentially to borrow funds up to $750 million, mainly for general corporate purposes. The company’s assets have been affirmed as collateral for the majority of the credit line. This announcement was declared after three days, after current finance Chief Deepak Ahuja disclosed that he plans to get retired from the company.
Ahuja’s successor will also need to allocate and make use of new funding, as per the company’s requirements. Investing a huge amount in auto manufacturing industry is nothing for Tesla, as the industry itself is capital intensive, particularly when manufacturing a new type of car models. According to a source, Tesla’s capital expenditures have surpassed its operation cash flow, and have adjusted for changes in working capital, by accumulating $2.7 billion of investments.
As per company’s financial reports, Tesla’s investments have rapidly paced towards its ambitions. Tesla CEO – Elon Musk expects to deliver 55,000 vehicles in the market by this year, and at least 10xs that number in 2020. The new Model X crossover vehicle will be launched late in the third quarter by this year. Along with this, Tesla is also working on a new project plan besides cars, like his home and utility-scale batteries. So, in order to meet their objective, Tesla would require more cash for investment purpose.
Tesla’s first quarter earnings generated $1.5 billion in cash recorded in its balance sheet that has declined to $2.3 billion as of last September. One of the largest records at the company was its last quarter’s free cash flow of $558 million, but Tesla said that in May, the company expects its cash-flow positive in its fourth quarter earnings – the full period in which the company will sell the Model X cars.
How smoothly Tesla will launch its new Model X vehicles would have a significant impact on the rate at which the company continues spending more on those models. This means a successful launch of a new model will have more cash outflows of $1 billion over the three quarters of 2015. But, if the Model X would stumble out of the gate, then the cash burn could exceed $1.5 billion. In such scenario, the company would end 2015 with at least $1 billion, having cash liquidity, even if it plans to invest more in multiple projects again in next year.