If you ever had a ride in a Tesla you will enjoy it, however you may or may not want to buy the shares. In an article by Tom Krisher of the Associated Press, Elon Musk will be buying $25 million worth of shares up from $10 million. Similar to many companies, Tesla needs to raise money on a regular basis and many analysts follow the cash flow of the company. Tesla reported its cash balance at the end of the first quarter shrunk by $1.5 billion since December to $2.2 billion. Mr. Musk said during a conference call that Tesla might need to raise capital again.
The company expects the debt to rise from $9.79 billion to $11.63 billion. It should be noted Tesla will have enough money to pay the $566 million due in November of 2019.
The Tesla sells for about $55,000, to increase sales a drop in price to $42,000 is needed. To do that Tesla has to reduce the costs to make the vehicle while maintaining a 25% gross margin target. The problem according to a Moody’s analyst is the competition, all the other companies now have and shorter will have very good electric vehicles and Tesla does not have a sustainable technical advantage over the competitors.
Although sales were down in the quarter and expected to be down again in the second quarter, the optimistic Mr. Musk expects a profit to be turned in the near future and sales would be increasing. One has to bear in mind, Mr. Musk has been saying for the past year, no new capital would be needed, but losses do change predictions.
Linking to dividend paying stocks, while Tesla does not pay a dividend, it is an interesting company to watch and hope for. It is hard and expensive to revolutionize any industry and Tesla has spent $6 billion trying to change the auto industry. One can hope, one can dream, but watch the margins and cash flow.
There are more questions than answers, till the next time – to raising questions.