Tesla Burns Through Record Cash To Bring the Model 3 To Market (bloomberg.com)

Dana Hull, reporting for Bloomberg: Tesla's Elon Musk keeps getting the green light to do what it takes to bring electric cars to the masses, regardless of how much it's going to cost. The company burned through $1.16 billion in cash in the second quarter by spending on capacity for its cheapest model yet and boosting battery output. Investors fixated instead on what Musk said is coming next: Hundreds of thousands of Model 3 sedan deliveries, installations of solar roofs and an all-new semi truck to add to the lineup. "This is the best I've ever felt about Tesla's future," Musk said on a conference call. The stock surged as much as 7.4 percent to $349.94 as of 9:45 a.m. Thursday in New York, the biggest intraday gain in four months. The chief executive officer has built a fanatical following of Tesla shareholders who continue to throw their support behind his clean-energy vision. It helps that consumers keep opening their wallets: The Model 3, which starts at $35,000, has racked up almost half a million reservations and is drawing more deposits by the day. The record negative free cash flow Tesla reported for the three months ended in June was almost double the $622 million it went through in the first quarter. With a little more than $3 billion in cash on hand, Musk told analysts the company is thinking about raising money through a debt offering.

Comments

it's not "burning cash"

[sxpert]

it's buying hardware and services to set up the production facility... big difference burning cash would be spending it on things that don't do anything for the company, such as distributing dividends and cash executive bonuses...

Re:it's not "burning cash"

[sxpert]

it shows "the financial sector" has it's priorities reversed if they seem to think "investing in production machines" is "burning cash"

Re:it's not "burning cash"

[fruey]

Well the cashflow is negative, for sure, but it's a long term investment strategy. Headlines are getting more clickbait-reinforced by the day.

Re:it's not "burning cash"

[OldMugwump]

"Burning cash" simply means using up cash reserves, without replenishing them from sales. Cash can be 'burnt' wastefully (throwing parties) or usefully (investing in production machinery), but it's still called 'burning' if you're using it up faster than it's coming in. That's just how the term is used.

Re:it's not "burning cash"

[AlanObject]

it's buying hardware and services to set up the production facility... big difference

Absolutely. This post should be modded up 1000.

What this also represents is a near perfect case study as to why most Republicans are sheer nonsense when it comes to the economic of taxation. They will try to convince you that if rich people and rich corporations accumulate enough cash they will start to "create jobs." So we need tax cuts or else nobody will create jobs.

Pure BS. There is one reason and one reason only that a (well run) corporation will spend money to create jobs. It is because they are following a business plan to get customers to buy their service or product. Because they see a market they can win at. Anything else and they will turtle up and hoard cash and lay people off if necessary to stop bleeding.

In this case Tesla has a $1B backlog. They know the customers are there and they are using a lot of its available cash to employ people. Either directly or by buying stuff from their vendors. Tesla has nowhere near the amount of cash on hand than many companies that are looking for a tax cut.

So this is why they are not "burning cash." They are generating revenue. Profitable revenue which they will likely spend, not burn, creating the next generation product to expand their market space.

Re:it's not "burning cash"

[Solandri]

The problem is their cashflow is mixed together with government incentives influencing buyers, and selling ZEV credits to other car manufacturers. It's not at all clear that Tesla's long-term investments actually yield a self-sustainable business model without these external factors. Both have to end at some point.

Re:it's not "burning cash"

[Rakarra]

Well the cashflow is negative, for sure, but it's a long term investment strategy. Headlines are getting more clickbait-reinforced by the day.

The difference is that cash flow is real, and long-term investment is hope. There are lots of companies that spend cash to "invest in the future" and that cash is gone when the hoped-for sales don't occur. Tesla has a leg-up on them, given it has deposits for future sales, but not all of those future sales will happen.

Re:Chevy Bolt

[minogully]

Biggest difference is the supercharger network for the Model 3. The Bolt's options when it comes to road-trips are more limited and where they exist they are inferior since they don't have the same charge rate as the supercharger.

Re:Chevy Bolt

[ranton]

The Tesla isn't built by a company that swallowed a bunch of taxpayer money in a big government shell game to survive...

Oh wait...

Every company takes advantage of government programs to exist. Public roads, public education, intellectual property protection, military protection of sea lanes, etc. Tesla probably owes its existence more to our universities for producing its engineers than it does to tax incentives.

Re:Chevy Bolt

[sxpert]

that's a budget issue. how about stopping the idiotic, unwinable war in afghanistan, and spend that money on electric car incentives (severa hundred billions a year)