Tesla reported $359 million losses in Q2, may sell more stock

Article by Andrew Christian, on August 12, 2015

Tesla Motors is considering a plan to sell more stock as one of its options to raise additional capital, according to CEO Elon Musk. Last quarter, Tesla lost $359 million in cash during a strong period for luxury vehicles. For every Model S electric sedan sold, the automaker loses over $4,000.

Last Wednesday, Tesla reduced its production goals for 2015 and 2016. Since the company went public in 2010, Musk’s investors have been taken on an exciting albeit unpredictable ride. However, Musk has imposed a deadline on himself, pledging that by the first quarter of next year, the automaker will have sufficient money to make the transition from building one costly, low-volume car to having a mass production of many models.

He also aims to expand a venture to produce electric power storage systems. Last Thursday, Tesla’s shares decreased by nearly 9%. On Friday, it slipped 2% further as analysts and investors considered the risks of his lofty plans for growing the auto and energy storage segments.

As of June 30, Tesla had just $1.15 billion on hand. In comparison, it held $2.67 billion the previous year. Cash is spent by automakers to acquire assembly line equipment such as metal dies and plastic molds and for testing so that it can comply with safety and emissions standards.

To engineer a new car and prepare it for the market, it costs at least $1 billion. Bigger auto companies like Ford and GM were hurt by the recession in 2008 to 2009 but since then, its balance sheets have recovered and they now have much bigger cash cushions. As of June 30, GM had more than $28 billion in cash equivalents.

GM, which came out of bankruptcy 6 years with government aid, had set a target of $20 billion in cash reserves. The major difference is that GM has annual sales of more than 9 million units while Tesla intends to produce from 50,000 to 55,000 cars in 2015. In the second period, Tesla delivered 11,532 cars.

For each car, the company gets an operating loss of around $4,000. This means that it amounts to around $47 million in operating loss. Most of Tesla’s cars are built to order directly. Another way that Tesla stand outs from its competition is that it has very little margin for error.

This year, the company has targeted $1.5 billion in capital spending, primarily to launch Model X – a battery powered SUV with stunning vertical-opening "falcon wing" doors. In the first half of the year, it posted $831 million in capital spending, signifying that it will spend around $700 million more.

In the second quarter, Tesla reported an increase in operating costs and r&d expenses. Meanwhile, there was a drop in the average selling prices for the Model S lineup (which has a starting price of $70,000 before federal and state electric vehicle tax breaks) amid a shift in the market towards more affordable models and as a strong dollar affected revenue made overseas. The Model S is available in many versions, with a price range that can go as high as $106,000.

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