The Tesla Model X: Why Not Slow Down And Get It Right?

| About: Tesla Motors (TSLA)

Summary

On Sunday, I published a piece suggesting that Tesla is rushing to deliver Model X cars even though some of them have obvious problems.

More Model X buyers have now reported receiving cars that are not ready for prime time.

Tesla's rush to deliver the Model X, ready or not, is consistent with our theory that a capital raise is imminent.

I'm frequently accused of writing pieces that are too long. This one will be short.

My most recent article surmised, among other things, that with Model S sales in decline, Tesla (NASDAQ:TSLA) was rushing Model X deliveries so that it could meet Q1 guidance, despite obvious problems with some of the cars.

As evidence, I offered this post:

Click to enlarge

Accompanying the post were three photos (here, here, and here). Particularly astonishing are the puttied joints.

Now, consider this more recent post:

Click to enlargeIt's from this past Sunday, at the official Tesla Motors forum.

And consider, as well, this post:

Click to enlarge

It's also from Sunday, at the same forum. It includes attached photos that are certainly worth a look.

Let me note that the poster, Pheadrus, is eager to forgive Tesla and reluctant to cast aspersions. Like many Tesla owners he is loyal to the company and forgiving of its shortcomings.

In his post, Pheadrus worries, "Coming from owning BMW and Audi - am I being too detail-oriented here with these pics?"

No, Pheadrus, you're not being too detail-oriented. After all, we are guessing you paid $110K or so for your cutting edge Model X.

I've often acknowledged that Tesla has an exceptionally loyal and dedicated customer base. Many Tesla customers have waited four years for their Model X, and surely waiting just a bit more would not scare them away. Indeed, many of them already own a Model S.

So why would the firm risk jeopardizing its huge and valuable reservoir of goodwill by delivering cars with such obvious problems? And, especially given the well-publicized rollout problems, why risk further compromising the Model X's prospects with harmful publicity? Why not wait a few weeks and get it right?

Here's what I believe. Tesla knows it needs several billion dollars to complete development and tooling of the Model 3 and to fund its other capital needs (Gigafactory, Service Centers, Superchargers, etc.). It needs at least enough money to keep it afloat until volume production of the Model 3 begins in 2018.

There will never be a more propitious time to raise the capital than in the weeks following this Thursday's Model 3 reveal. Tesla's stock price has risen sharply since early February. Tesla is already receiving flattering Model 3 publicity, with photos of eager buyers camped out at Service Centers so they can be first to place their deposits.

Starting Friday, Tesla will be able to boast about the tens of thousands of reservations it is receiving each hour.

However, only a few days after the Model 3 reveal, Tesla is due to release its Q1 delivery figures. The Q1 delivery guidance is already very modest. It is 1,400 cars fewer than Q4 deliveries. It is 4,000 cars fewer than the quarterly average that Tesla must meet to achieve the low end of 2016 guidance.

So, to maintain the favorable environment for an equity raise, Tesla cannot afford to miss Q1 guidance or, if it misses, it cannot afford to miss by much.

This is especially true because the favorable window for raising equity may close in early May, when Tesla has to release its Q1 financial results. Almost certainly Tesla will again show a significant operating loss and large cash burn.

Consequently, the management imperative is to meet Q1 delivery guidance now and deal with the consequences later.

If some Model X owners must suffer, so be it. In the immortal words of Francois de Charette, on ne saurait faire d'omelette sans casser des oeufs (translation here). And a capital raise of several billion dollars would be a very important omelette, indeed.

Note About Contributors

Seeking Alpha members bwmaki and Ralph Vader called to my attention two of the posts I have cited. I thank them.

They do not necessarily subscribe to my analysis, nor are they responsible for any errors I have made.

Disclosure: I am/we are short TSLA VIA PUT OPTIONS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.