There's growing concern over Tesla's finances - and Wall Street's convinced the company will need to raise money soon

Lucy Nicholson/Reuters

• Tesla says it will be profitable by the end of the year and won't need to raise more cash. Many on Wall Street disagree.
• The company lost $3.35 per share in the first three months of the year, while burning through $1.1 billion.
• Shares have lost 11% this year amid production delays, a spate of executive departures, and a bizarre conference call.
• Goldman Sachs analysts said earlier this month that they thought Tesla would need to raise $10 billion in the next 18 months. And this week, UBS analysts said they thought Tesla would need to raise additional capital before 2018 is out.
• Follow Tesla's stock price in real-time here.

Tesla has been a stock market darling ever since it went public back in 2010. The stock is up more than 1,500% since the IPO, and Elon Musk's electric car company is currently worth more than old-guard automakers Ford and Fiat Chrysler. It trails General Motors by a few billion dollars.

That valuation has been attained despite consistent losses and problems with production. The company produced 55,120 vehicles last year, compared to Ford's 2.46 million, while its newest car, the Model 3 sedan, has grappled with production delays since its inception.

Now, with the company in a state of "production hell," analysts and investors are starting to ask serious questions about Tesla's ability to fund its operations without raising additional capital. And with Tesla's bonds taking a hit and markets jittery, the availability and cost of that capital is also in question.

Here's why:

Tesla is burning cash like crazy

The company burned through $1.1 billion cash in the first quarter of 2018, regulatory filings show. That's a slower burn than in previous quarters, when the quarterly cash burn hit $1.4 billion, but equates to a burn of $7,430 every single minute, Bloomberg calculated.

That left Tesla with $2.7 billion cash on hand at the end of the quarter, much of which is tied up, according to analysts.

"Tesla has at least $2.6 billion in obligations coming due (~$750m in Gigafactory related accounting liabilities & ~$1.8 billion in maturing debt)," UBS analyst Colin Langan said in a note to clients Thursday. "Also, of its $2.7 billion in cash, ~$880 million is abroad (may be difficult to access) and customer deposits of $1 billion will decline with higher deliveries."

Tesla says it won't need to raise cash, but Wall Street disagrees

"Tesla does not require an equity or debt raise this year, apart from standard credit lines," the company said in an April filing. That sentiment was echoed by Musk just days later, when he tweeted that "Tesla will be profitable & cash flow+ in Q3 & Q4, so obv no need to raise money."

Wall Street disagrees.

Goldman Sachs analyst David Tamberrino told clients earlier this month that Tesla may need $10 billion in fresh funding within the next 18 months to stay alive.

"Between its current operations, anticipated new product spend, and incremental capacity additions, we see Tesla potentially requiring over $10 billion in external capital raises and debt re-financing by 2020," he said. "We believe this level of capital transactions may be funded through multiple avenues, including new bond issuance (secured and/or unsecured), convertible notes, and equity."

And earlier this week, UBS analyst Colin Langan said that Tesla would need to raise capital in 2018.

"We forecast Tesla will need additional capital by Q418 to de-risk its balance sheet," he said.

Tesla is currently saddled with the most debt out of any S&P 500 company, at least according to one measure. The company's debt-to-EBITDA ratio sits at roughly 39 times, well above the next-closest firm in the benchmark index.

Its outstanding obligations currently total $1.8 billion, and issuing more debt could be tricky going forward.

Tesla's bond prices have fallen 9% since the beginning of the year, hitting an all-time low of $0.8718 cents on the dollar in early April just after Moody's, the credit rating agency, downgraded both Tesla's overall corporate rating and bond ratings citing the "significant shortfall" in Model 3 production rates.

The yield on Tesla's 2025 bonds is currently 7.61%, up from a low of 5.4% shortly after they were issued, suggesting that if Tesla were to raise money in the bond market today it would be much more expensive than it was in the past.

When analysts on Tesla's most recent earnings conference call tried to ask Musk about the possible need for a cash infusion, things only got worse.

'The most unusual call I have experienced'

Tesla bosses including chief executive Musk joined sell-side analysts for a conference call following the company's earnings report May. These question-and-answer sessions are usually intended to give analysts an opportunity to get more context on the quarterly filings.

This call was different however, leading Morgan Stanley analyst Adam Jonas, previously a Tesla bull, to say it was "most unusual call I have experienced in 20 years on the sell-side."

Musk answered Jonas' question about the possibility of raising capital, but had little patience for other questions about specific capital requirements.

"Excuse me, next," he said, interrupting Antonio Sacconaghi of Bernstein. "Boring, bonehead questions are not cool. Next."

The next question, from Joseph Spak of RBC Capital Markets, also prompted an interruption. "These questions are so dry. They're killing me," Musk said.

He then took seven questions from Galileo Russell, a self-proclaimed finance geek and retail investor whose "two biggest current fascinations are Tesla and Bitcoin." Neither were about Tesla's financials.

Shares of Tesla sank 7% following the contentious call.

"I just left the call very frustrated," Rebecca Lindland, an analyst at Kelley's Blue Book, said afterward. "Elon, you've got to grow up. You've got to stop looking at shiny objects and you've got to get on track. You have to take analyst questions, adult analyst questions, not fanboys, not retail analysts."

Bosses could be burning out amid 'production hell'

Musk has repeatedly stated his goal of reaching a production target of 5,000 Model 3's per week. Based on the monthly reported numbers, Bloomberg currently estimates the output of Model 3's to be just 1,418 per week, less than half of Tesla's goal by the third quarter. The company flew just in six planes full of robots to speed up battery production.

At least nine executives have departed Tesla since the beginning of the year. Cal Lankton, senior vice president of the company's energy operations, is the latest to leave. He will be replaced by Sanjay Shah, who joins Tesla from Amazon. Additionally, Doug Field, senior vice president of engineering, is currently on a leave of absence with no set return date.

"Given the pace of departures of senior management in the past year and the stress placed on suppliers to meet production targets, we believe burnout is a legitimate concern," Oppenheimer analyst Colin Rusch said on Wednesday. "Indeed, burnout could prove a significant challenge over the short and medium term."

Like most other sell-side analysts - who have a bullish average price target of $317 for shares to Tesla - Oppenheimer says that the company will likely need a cash infusion.

"We believe investors expect that Tesla will need more capital especially given management's acknowledgment of a China factory, another battery factory and the need for capacity to produce Model Y, the new Roadster as well as Semis," said Rusch. "We would view an equity raise as a positive catalyst."

Tesla is scheduled to report May vehicle deliveries alongside all other major automakers on Friday June 1, where investors will be paying close attention to Model 3 numbers as well as any additional commentary from the company surrounding its impending cash crunch.

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