Since the August 7 tweet by CEO Elon Musk, who said he was considering to take Tesla (NASDAQ: TSLA) private, the discussion around the company has concentrated on one big question: will Tesla be able to find the financing needed to go private for $ 420 per share?
But there is another important question that was asked before the tweet of Musk changed the subject: how close is Tesla for lack of money?
We got an answer – sort of – when Tesla reported his earnings for the second quarter on 1 August. While Tesla's loss exceeded Wall Street's expectations, investors were particularly impressed by the headlines of the electric car manufacturer, including the cash burn: the net cash of Tesla's outflow was only $ 130 million in the quarter.
Has Tesla really changed the cash flow-tide? Not quite. Let's take a closer look at that.
The result in the second quarter of Tesla looked good – in the beginning
Tesla said it had $ 2.24 billion in cash at the end of the second quarter. That was less than $ 2.67 billion at the end of the first quarter, but it was not nearly the same as some (including your modest idiot) expected.
Tesla even said that the net cash outflow from operating activities in the second quarter was only $ 130 million, a big improvement over the net cash outflow of $ 398 million reported in the first quarter of 2018. That seems a movement in the right direction, and Musk expects more progress in that direction as the year progresses.
"We are confident that it is cash-flow positive and GAAP profitable in Q3 and Q4," said Musk during the company's earnings call.
But how could Tesla spend just $ 130 million in cash on operational activities, including things like production? Or to formulate it more broadly, how did it still have $ 2.2 billion in cash at the end of the second quarter?
A deeper dive shows that there are still problems
It seems that the answer consists of a number of parts. Firstly, Tesla seems to be delaying the payment of some bills. Second, Tesla drew heavily on its asset-backed credit line during the quarter.
About those accounts: Tesla had no less than $ 3.03 billion in creditors at the end of the second quarter. That was 16.4% – $ 427 million – from the end of the first quarter. In addition, it had another $ 1.8 billion of accrued liabilities (think of these as creditors that have not yet been invoiced).
That is $ 4.85 billion in invoices that should or should not have been paid by 30 June. That is from about $ 4.1 billion at the start of 2018, which is a sign that Tesla may have slowed the rate at which it pays bills.
There is more. Tesla has an asset-backed credit line that totals just over $ 1.8 billion. From the end of the second quarter, it had used just under $ 1.6 billion, compared to $ 1.28 billion at the end of the first quarter. Translation: Tesla drew approximately $ 312 million of its credit line in the second quarter and it had only about $ 231 million left on its line from 30 June.
Between the payment delay and the credit line, Tesla avoided burning approximately $ 740 million in cash in the second quarter.
Tesla said this week that things are going better
The cash balance of Tesla has fallen further since the end of the second quarter. The Wall Street Journal reported Monday that Tesla's money on August 12 had dropped to $ 1.69 billion because it had made a $ 500 million payment on its credit limit in July.
I suspect that the payment was made to appease the lenders, like Tesla's officials diary that the company plans to re-develop that $ 500 million later in the third quarter.
Tesla also said that it expects its deliveries to increase in the second half of the third quarter. Between the cash flow of those deliveries and the revised $ 500 million, Tesla expects to end the third quarter with a cash balance higher than the $ 2.24 billion it had at the end of the second quarter, according to the diary.
The result: soon Tesla will need a lot more money
Tesla knows that it is money. The company has recently taken significant steps to maximize the remainder of its cash, including 9% of its workforce in June. According to reports, it is asking suppliers in July to repay part of the payments since 2016.
That crunch is a good chance to become much stronger soon. Tesla has two major convertible debt issues ahead: an issue of $ 920 million in February next year, and a $ 1.38 billion issued early 2021. Both will convert to equities if the share price of Tesla exceeds $ 360 and stays there for a while, but unless Musk's ambition to take Tesla private is $ 420 per share, seems unlikely – at least for that first payment in February next year.
From now on, it seems that Tesla has not taken any steps to raise money through an offer of shares or bonds. It is possible – perhaps even likely – that Tesla is trying to build a cash infusion in his go-private deal. But until (and unless) a go-private deal takes place, Tesla's money remains a major concern for investors.