Here is an update of my blog on (TSLA) Tesla's cash problems from December 4, 2018. Recently I have also tweeted a forecast of Tesla's cash balance. When revisiting this tweet I wanted to update my spreadsheet with information in the annual report over 2019. Also I wanted to update it with information on the price cuts.
By going through the process of updating my spreadsheet I hope to give a more accurate forecast, with more conservative and Tesla friendly assumptions.
What changed in the spreadsheet:
1. In the previous spreadsheet I made a mistake with the asset backed loans. They were too low in the previous spreadsheet. Corrected that.
2. I included the numbers from the annual report over 2018. For example a relatively small debt was paid off in December 2018 and $920 million of convertible bonds were redeemed on March 1, 2019.
3. It seems unlikely Tesla can convert much of its finished goods inventory into cash. See here. Twitter user ElonBachman subtracted "cars in transit" from finished good inventory to get a cleaner measure of finished goods inventory. It turns out this cleaner measure is increasing already for 4 quarters in a row. This is consistent with other reports on new cars that Tesla apparently cannot sell. I have implemented this reasoning in my spreadsheet.
4. With the recent price decreases I assume a lower margin when Tesla sells inventory: 10% instead of 20%.
5. I have been more friendly for Tesla when making assumptions on their ability to convert accounts receivables into cash, though this may be unlikely. See also here.
6. I included the current portion of long term debt apart from the debts that are explicitly mentioned in Tesla's annual report. Use the balance sheet and note 13 and 17 to compute it yourself. I may be double counting here. That should not make much of a difference since my assumptions for repaying this debt are quite friendly for Tesla.
What did not change:
1. I still think Tesla is going to lose $500 million per quarter in 2019. In the spreadsheet you can change this in cell G2. For simplicity I assume these losses translate into cash losses in the same quarter. However these losses might not translate to cash losses immediately since Tesla may just ignore certain liabilities. Lawsuits suggest Tesla is effectively ignoring many warranty liabilities and also is very slow with refunds. But who knows how many liabilities have already been piling up from previous quarters. These already piled up liabilities may translate to cash losses soon. Finally, even when assuming much lower losses it is clear Tesla will not survive 2019 without extra financing.
2. I did not assume window dressing of cash, that is paying suppliers at the beginning of the quarter. See also here. A Tesla friendly assumption for such payments in the beginning of April is $2 billion. Making this assumption implies the company will have hardly any cash at the beginning of April 2019. Even when only assuming minor window dressing Tesla will not survive July 2019 without extra financing.
You can download and view the spreadsheet here. Download the spreadsheet before modifying it. For convenience a screenshot is here:
Tesla's stock is much overvalued because of the growth story. But demand is failing: in the US and in Europe. Elon Musk just announced most stores will be closed and customers will have to buy online. Do not expect such measures to increase sales!
Certain items of Tesla's balance sheet are highly questionable: for instance the cash balance, finished goods inventory, customer deposits and accounts receivables. See this previous blog. I wonder why the CFO has not retired yet though it was announced he would and he has signed the 10-K.
Because Tesla is much overleveraged there is a serious risk on a cash crunch. In fact the situation has worsened compared to December last year.
Tesla is too late with arranging extra financing. In the unlikely scenario Tesla can raise several billions I think such a big capital raise will have a devastating effect on the stock price.
So I recommend shorting the stock. If you are still long you should sell it. This won't end well.
Disclosure: I am/we are short TSLA.