As questions arise as to whether Tesla will become private – and the welfare of the chief executive, Elon Musk – there is a crucial factor for the fate of the electric car company: the financial health of Tesla itself.
The company has taken drastic measures because it pursues profitability, lowers costs and even builds a tent-covered third assembly line in its factory. But many of those tactics may not last long, and some may even hurt the company on the road.
The state of Tesla's balance sheet, and in particular the short-term liquidity position, is important for the future of the company, perhaps even more since Mr Musk's surprise statement on 7 August that he would investigate whether he would take the company privately. would take.
In an emotional interview with the New York Times last week, in which he said the & # 39; unbearable & # 39; year he had discussed, Mr. Musk that Tesla would soon be in black.
"Tesla will become profitable and cash flow positive," Musk said. "From the point of view of Tesla, I think it's a good place."
His remarks reflect what he said about the company's most recent earnings call when he predicted that the company would make a profit in the next quarter.
Mr. Musk is under intense pressure from Wall Street to make that promise come true and Tesla is plagued by production problems while boosting the production of his mass market Model 3.
In the meantime, short-sellers continue to focus on the shares and inject a destabilizing element into the company's share price. Good financial results would be bad news for the bets on hedge funds that Tesla will fail, and serve as justification for Mr. Musk.
And the financial position of Tesla will have a significant impact on all possible efforts to take Tesla privately. Investors evaluating a potential take-private deal will not only assess Tesla's long-term prospects, but also the cash and debts available at that time.
In order to achieve that profitability, Tesla climbs to cut spending in almost all areas of its activities.
In June it announced that it would fire about 3,500 employees, about 9 percent of its workforce, in a cost-saving move. It has approached some suppliers about paying back some money that Tesla has paid for projects that are still under way.
Tesla has said that it works to reduce costs by delivering completed vehicles faster. At the end of the second quarter, it had a stock of $ 579 million, an amount that according to the company was "a significant increase" compared to previous quarters.
And Tesla has even more drastic plans for cost savings in store. It has said it plans to cut capital expenditures by a quarter this year – to about $ 2.5 billion from $ 3.4 billion in 2017.
"There are many levers that pull them to be cash-flow neutral or positive in the second half, but there are interactions," said Toni Sacconaghi of Sanford C. Bernstein.
Tesla declined to comment on this story.
But while analysts say that Tesla will soon be very profitable, the cutbacks that would be needed could be expensive, slowing down the introduction of new models that could drive up revenue.
"They are not necessarily the best for the long-term growth of the company," said Mr. Sacconaghi. "Cutting capex is not sustainable," he said, referring to capital expenditures. "Cutting stocks is not sustainable."
Moreover, Tesla's pressure to save money will soon be complicated by two bonds that have to be paid within a few months.
It is planned to pay off a $ 230 million convertible bond in November, and a $ 920 million payment on a second convertible bond is scheduled for February. Tesla can pay the second bond in stock instead of cash, if the price of the stock is higher than $ 360. It has traded above that level in recent weeks, but closed at $ 305.50 on Friday.
Tesla has been in financial trouble, partly because of the use of cash – almost $ 1 billion every three months. It ended the second quarter with $ 2.2 billion, a decrease of $ 3.3 billion at the beginning of the year.
The uncertain cash position of the company prompted Moody's Investors Service to reduce Tesla's debt in March, stating "the probability that Tesla will have to make a major short-term capital increase to repay maturing liabilities and to liquidate a liquidity shortage." appearance."
Mr Musk said that such a capital increase would not be necessary because Tesla will soon be profitable. But Bruce Clark of Moody & # 39; s said he still expected the company to tap the capital markets.
"The company has made some significant progress with the Model 3 production and has reduced capital expenditures, but I still think they will need additional capital," Clark said. "It's not as tight as it was, but they have to stay on the path where they've been lately."
M. Musk has said that the production problems that Tesla covers earlier this year are resolved.
In June the company hastily built an assembly line a gigantic tent outside the walls of his factory in Fremont, California, in an attempt to speed up the production of Model 3. That extra assembly line – together with the removal of bottlenecks in the two inner lines – has enabled Tesla to increase the output level to 5,000 per week, an increase of less than 3,000 cars per week in May.
That profit, however, required production 24 hours a day, which may not be feasible for Tesla. Other car manufacturers have found that production in the long term is not sustainable for 24 hours, because employees are burned and machines are broken more often.
The financial future of Tesla is further complicated by an investigation by the Securities and Exchange Commission into the tweet of mr. Musk, in which he announces that he was considering taking the company privately. The committee is expected to meet with Tesla executives this week.
In order to handle the investigation, the Tesla Board and the special committee of the Board that assesses a potential buy-out each maintain a law firm. In addition, the special committee has retained a crisis communication company and other public relations companies are fishing for contracts.
These legal costs will increase, and the threat of lengthy legal proceedings could also complicate Tesla's efforts to raise more money if necessary.
On the early Sunday morning Mr. Musk's Twitter address and he reminded his followers how hard he works while struggling to make Tesla profitable.
Responding to a message from Arianna Huffington, the founder of Huffington Post and member of Uber's Board, who suggested that he go on vacation and focus on his physical and mental health, Mr Musk said: "I came just at home from the factory, you think this is an option, it is not. "