Tesla Sinks Into "Delivery Logistics Hell" as Musk Launches In-House Collision Repair| Zerohedge



From manufacturing hell to logistics hell

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Between the moment you're reading this and the end of 2019 Tesla needs to come up with about a billion dollars to give to creditors.

And right now it doesn't look like the company has it.

So forget the libel lawsuits and the Twitter wars, the SEC investigations and tearful interviews from CEO Elon Musk. Forget the race to 5,000 Model 3s and the "production hell" turned "delivery hell" and all the hours of rework. Try to forget all the drama with hip-hop star Azealia Banks (if you possibly can).

Remember instead that Tesla is — up until now — a profitless public company with billion in long-term debt, trying to scale and survive in a capital-intensive industry where margins are thin.

And in remembering that you'll understand that Tesla's controversial CEO Elon Musk has yet another enemy to add to his list along with the short sellers and doubters — and that enemy is math.

These are the breaks

The signs of Tesla's cash crunch are here and there for anyone to find them.

The company is trying to renegotiate more favorable payment schedules and/or rebates with its suppliers and vendors. Back in August, 18 of 22 respondents in a survey of auto parts suppliers said Tesla was a danger to their companies, according to the WSJ. At least one supplier has gone broke waiting for Tesla to pay up. There are over a dozen mechanics liens filed against Tesla in Alameda County, home of the company's Fremont, California factory too.

These are signs that Tesla is trying to stretch out the cash that itdoeshave. As of June 30, the company's total current liabilities of .1 billion devour its .7 billion in assets. That means it's about .4 billion in the hole when it comes to working capital.

But this is Wall Street, and numbers like that don't necessarily mean a company is finished when it has a billion market cap and an illustrious CEO. As of June 30, Tesla was still holding around .4 billion in cash, 2 million of which are customer deposits for the Model 3. That leaves the company with .4 billion excluding deposits.

And it has expenses coming due. In November the company needs to shell out 0 million for a convertible bond payment. And by the end of the year, it needs to have an additional 0 million in the bank to pay a loan due in March. It also has a small 7 million non-recourse loan due in December.

Add that all together and you have an ugly scenario playing out on Tesla's balance sheet, and in that scenario Tesla's .4 billion in cash shrinks down to just over million in cash, Model 3 deposits aside.

Tesla did not respond to a request for comment about these figures.

In finance, there is something called the quick ratio or (if you're fun), the acid-test ratio. It's a company's current assets divided by its liabilities. In the scenario we just walked through, Tesla's acid-test ratio ends up at 0.20. In 2008, right before it went bankrupt, GM's acid-test ratio 0.30.

Moody's on Tesla's capital situation, from March. Moody's

Complications

All of this is why in March, just after downgrading Tesla's credit rating, Moody's said the company would have to raise capital to continue operations and pay off debt. It estimated Tesla would blow through billion in cash through the year and remain cash flow negative through 2019.

In other words, Moody's was saying the Model 3 ramp up wasn't going to provide anything like the sort of cash windfall Tesla needs going into 2019.

In fact, by Tesla's own estimates, it may not even make the company profitable. Musk said on Tesla's second quarter conference call that it would be profitable the following quarter by making 7,000 cars a week (5,000 Model 3s and 2,000 Model S and X's).

At the same time, though, he guided to 50,000- 55,000 Model 3s manufactured in the third quarter — a goal the company met by delivering 55,840 Model 3 cars and producing 53,239 of them. That's just over 4,000 cars a week. Not enough for Musk's promised profitability.

All that said, despite Moody's dire predictions and Tesla's own disconnect between projections and profitability, Musk has said repeatedly through the year that he will not raise money. So where is this cash going to come from?

Tesla bulls say it all the time — "don't bet against Elon." The company has been on the edge of financial ruin before and survived to see another quarter. Perhaps that's why despite these troubles, Macquarie analysts Maynard Um and Tim Liu just initiated coverage of the company, setting a 0 price target. They are confident that Musk can yet again pull a rabbit out of his hat using a combination of electric vehicle credits (ZEV credits) and financial engineering to make it through the 2nd half of 2019 with Tesla intact.

From their report:

Our thesis is also predicated on TSLA having enough levers to get over the debt maturity hump including cash flow from ZEV credit (estimate potential for 0-0 million in 2H 18) &Model3sales,accessto.2Bunuseddebtcommitment,potentialforcreditamendments,etal.WhileCEOElonMuskhassaidthecompanydoesnothavetoraisemorecapital,webelievearaisethroughequitywouldbebeneficialinfurtherstrengtheningitslonger-termoutlookaswellasprovidingacushionincaseofanyunexpectedperiodsofeconomicsoftening.

GeneMunster,founderofventurecapitalfirmLoupVentures,toldBusinessInsiderheseesTesla'ssurvivalplayingoutadifferentway.Tohim,thingslikeZEVcreditsarejustnoise.WhatwillreallybringTeslathroughthisperiodisgoodoldfashionedcashgenerationthroughsales.

"ThewholeTeslastoryboilsdowntothenumberofModel3ssoldandgrossmargins,"hetoldBusinessInsider."Ifyoucreateasituationwherethecashflowgoesfromnegativetopositiveyoucanstartservicingthedebt."

TheMunsterplanlookssomethinglikethis(keepinmindthatTeslaneeds.5billionincashonhandtofinanceitsoperations):

  • Model3saleshold,andgrossmarginshit15%duringQ32019.
  • Ifthat'sthecase,thecompanystayscashflowneutralbutshouldn'thaveaproblemwithits0millionand7millionpayments.ThattakesTesla'scashdowntojustunderbillion.
  • ThetrickypartisQ42019,whereTeslawouldneedtoincreasegrossmarginsto20%andsellmorecars.
  • Ifitcandothatitcangeneratebillionincash,accordingtoMunster.Thenitstartsthenewyearwithbillion—enoughtopayoffitsdebt.

"Let'ssayI'mwrongandModel3grossmarginsdon'tgetto15%intheSeptemberquarteror20%intheDecemberquarter,"Munstersaid."Thenthestockwillfall,andthenthequestionbecomescantheyraisebillion."

From'manufacturinghell'to'logisticshell'

GettingModel3grossmarginsto20%willnotbeeasy,andthatisinpartbecauseofwhatMuskoncecalled"manufacturinghell."Overthelastyear,TeslahashaddifficultystreamliningandcheapeningtheprocessofmakingModel3s.

Moody'sdowngradedTesla'screditratingbackinMarchbecauseofitsslower-than-promisedModel3production.Teslahasmanagedtospeeditupsincethen,butit'sstillmakinga,000versionofthecar,notthe,000versionthecompanypromised.Undoubtedly,someofthepeoplewhoputdowndepositsfortheModel3arewaitingforthatmoreaffordableversion,butElonMuskhimselfhassaidthatsellingthatmodelrightnowwould"causeTeslatodie."It'stoocheap.

Sellingamoreexpensivecarisgoodforgrossmargins,butitdoeshaveadownside—it'ssimplynotmakingtheversionoftheModel3manypeoplesignedupfor.Itcreatesademandissue.

AsofJuly,itwasestimatedthataboutaquarterofpeoplewaitingfortheirModel3scanceledtheirdeposits,accordingtoNeedham&Co.analystRajvindraGill.Aroundthesametime,Teslaopenedpurchasesuptoeveryone(aslongasthey'rewillingtobuythemoreexpensivemodel,ofcourse).

Andthentherecameanewhell—onethatMuskcalleda"deliverylogisticshell."

Unlikelegacycarmakers,Tesladoesn'tworkthroughdealershipswhobuyfrommanufacturersandtakecareofthewholesellinganddeliveryaspectofbuyingacar.Teslahastodoitallitself,anditdoesn'tappearthatthecompanywaspreparedforthat.Muskhasproposedyetanothermoney-meltingsolutiontothisproblem—buildingcarcarriersin-house.

OnTesla'ssecondquarterconferencecall,Musksaidthathefounditwas"amazing"howmuchofTesla's"productionisactuallysoftware...andmanufacturingatvolumeismostlyasoftwareproblem."

Itisunclearwhathemeantbythat.

"Softwareisnottheproblemwiththeirmanufacturing,"Munstersaid,"manufacturingistheproblemwiththeirmanufacturing."

Softwareproblemsaresolvedbyhoursofcodingandanotherrelease.Manufacturingproblemsaredifferent.Theymayrequireafullredesignofapart,orderingdifferenttools,orreimagininganassemblyline.Mostimportantly,theyareincrediblyexpensivetofix.

"Wefixedatonofdefects,"oneformerTeslaVPtoldmewhoaskedtoremainanonymous."Thennewoneswouldpopupbecausesomeunprovenpartwasintroduced,likewhackamole.Thenumberofchangesintroducedtotheproductionlineeachweekwascrazy—unintendedconsequences."

Detroitwilltellyouthattheseproblemscould'vebeenavoidedhadTeslabuiltcarsmorelikelegacyautomakers—slowly,methodically,withplansperfectedbeforemanufacturingstarted.ButcurrentandformeremployeesatthecompanyhavetoldBusinessInsiderthatthatkindofplanningisnotpartofthecompany'sethos.

"IrealizedTeslawasinfinancialtroublefromdayone,"theVPcontinued."Thecompanyhasbeenabletoconvinceeveryonethey'reingrowthmode...buthowmuchmorepatienceisWallStreetgoingtohave?"

IfTesla'sfinancesplayoutthewayMunsterenvisions,thenWallStreetwillsoonbeabletobreatheasighofrelief.InvestorswillbeabletofocusonTesla'sotherproblems— a controversial CEO, issues with regulators, and more.






Video: Leaked Model Y Plans

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Date: 19.12.2018, 08:18 / Views: 35391